Investment During The Current Recession
The interns of the “Do More With Your Time” – A KredX Internship Initiative, has been brightening up our days with their insightful blogs & articles. Here’s a blog by our 16-year-old intern Palak Sureka about investment during the recession.
The current coronavirus pandemic has shaken the world and resulted in a profound impact on all aspects of our lives- especially financial. The IMF (International Monetary Fund) has declared that “the global economy has entered recession as bad or worse than in 2009.” IMF estimate for the overall financial needs of emerging markets is $2.5 trillion. This situation calls for a different approach to investment to reap maximum benefits.
Both Indian benchmark indices, i.e. BSE Sensex and NSE nifty, have officially entered the bear market showcasing investors’ fear of economic fallout in such times. The topmost priority now becomes to ensure maximum security besides exploring investment opportunities.
Why Not Cash?
While most people have started sitting on cash, it might not be the best idea to do so as the currency value of rupee will depreciate (unlike US Dollar and Yen) as our country will continue to print currency notes thereby increasing money supply leading to an excess of aggregate demand over aggregate supply, also known as inflationary conditions in the economy. The rupee has already weakened as much as 0.8% to 74.34 per dollar.
The Golden Opportunity
On the bright side, the World Gold Council (WGC) stated that gold provides more liquidity with no credit risks and improves overall portfolio performance. “Today, gold is more relevant than ever before for Indian investors. In such times of uncertainties and global market turmoil, gold possesses the ability to significantly improve risk-adjusted returns of portfolios across various levels of risk and act as a hedge against inflation and our data confirms this,” WGC Managing Director, India, Somasundaram PR said. Investing in gold coins may be a good idea right now as gold does not result in a panic reaction to market movements. It must be noted that the stock market is yet to hit its bottom and it is not wise to risk limited funds in by investing during a time of economic recession if one does not have enough future security to provide for recurring expenses especially since sources of income are now limited.
However, investors with surplus funds can continue looking for investment opportunities as selected sectors such as biotech, pharmaceutical companies, teleconferencing companies are continuing to do well or even better due to the rise in demand.
While equity markets are volatile, continuing to invest in staggered investments like Systematic Investment Plans (SIP) and Systematic Transfer Plans (STP) can prove to be a good investment strategy for people who neither have time or adequate resources to start investing on their own. The biggest advantage of SIP right now is rupee cost averaging i.e. you invest a fixed amount of money at regular intervals irrespective of whether the markets are going high or low. This ensures that you buy more units when the markets are low and lesser units when they are high. This approach brings down your average cost per unit over the long-term.
It is important to keep in mind that our economy has faced many such challenges and overcame them. COVID 19 will have an impact which will be felt along the years, but it is critical to analyse such situations for hidden opportunities and be alert at all times as the markets continue to fluctuate.