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Plan out a simple investment strategy for these crucial times

  • Humanity is undergoing an era of great uncertainty. Making decisions in high-uncertainty situations is a Herculean undertaking. India faces a difficult problem in dealing with the second wave of pandemic infections.
  • Many battles have been won by the virus, but the war will be won by vaccines. Dr. Anthony Fauci, a well-known immunologist who has advised seven US presidents, recently warned of the pandemic.
  • This appears to be the market's opinion as well. March 2020's panic and crash was a sensible reaction to the "unknown." The market's subsequent surge is a reasonable reaction to the "known." Nobody knew what would happen in March 2020. There is now a clear picture of the eventual result. Even though the virus has won many battles and caused enormous misery, there is reason to hope that the vaccination will win this war.

The worldwide markets are improving.

The economies all over the world are reviving, led by the United States and China. In the US, the most recent macro data on employment claims and domestic sales show a rapid recovery. In 2021, the United States is expected to grow at a rate of 6%, while China is expected to grow at a rate of 9%. The two titans' outstanding predicted growth bodes well for the rest of the world.

At this point, a vaccine-driven recovery in Europe and emerging markets is a distinct possibility. A 6% normalization of economic activity in the second half of the year and 6% global GDP growth in 2021 are both plausible scenarios. Global stock markets are discounting this projected positive outcome.

India's GDP and corporate earnings are expected to fall short of expectations.

In FY21, India's GDP is expected to have shrunk by 8%. For FY21, Nifty EPS is expected to be around Rs. 510. Prior to the second wave of the pandemic, market expectations were for GDP growth of over 11% and Nifty earnings growth of over 30% in FY22.

These goals are unlikely to be met in the current environment of rapid infection proliferation and ever-increasing constraints on economic activities. The degree and duration of the lockdowns and limits will determine the impact on growth and earnings.

Keep it Basic while Investing - Simple Investment Strategy

  • In these difficult circumstances, investment strategy should be straightforward. Globally, markets appear to be healthy and resilient. Markets are likely to stay robust because liquidity will continue to be abundant and interest rates will remain abysmally low for a lengthy period of time. An unexpected spike in inflation and the US Fed reversing its highly supportive policy would be a big threat to the market.
  • In the immediate term, however, this is doubtful. As a result, staying invested in stock makes sense. However, given the high level of uncertainty, it might be prudent to shift some profits from equity to fixed income, notwithstanding the poor fixed income yields.
  • The top 20 corporations in India account for over 80% of the country's corporate income. The majority of these blue chips in financial services, information technology, oil and gas, fast moving consumer products, and capital goods will continue to do well. As a result, staying engaged makes sense. However, because values are high, the broader market is expected to outperform in the future.
  • However, spotting potential blue chips among the midcaps and smallcaps is a difficult task. Online trading in the share market through Motilal Oswal is an excellent option.

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