Beyond Disruption of Covid 19

The global economy has locked down and experiencing unprecedented uncertainty and volatility. Accordingly, it is ideal for everyone to ensure that we are mentally and financially prepared to face what lies ahead over the next few months.

Managing Personal Finance: - In the waft of this financial fall let us look at the important aspects in our personal finances

1)   Emergency Fund: - It is utmost important that our emergency fund is kept intact. Seeing stock prices fall, we might be tempted to invest this fund but please don’t make that mistake.

2)   Asset Allocation: - One should stick to asset allocation, in this situation both equity and debt must be maintained as per one’s own asset allocation plan.

3)  Review Financial Institutions: - The second order effects of this unprecedented volatility will be felt on credit markets and fragile financial institutions. One must ensure, the banks we deal with have sound financial conditions and the same applies to our brokers where we have our demat accounts.

Dissecting the Market: - When the world is grappling with Covid 19, what stock market is trying to tell us? Sensex has crashed more than 25% in March-2020. The opportunity in this time is that earning yield has first time gone above the bond yield since 2009. But does the current scenario lead us to something in the past? Let’s compare the recent events with past as mentioned below.

Checklist	2002 -2003	2019-2020
GDP Growth	4-4.5%	4-4.5%
Nifty Growth rate	7%,5% and 7% growth in 2000,2001 and 2002 respectively	7%,7% and 5% growth over the past 3 years
Nifty P/E	12-13 times	14-15 times
Interest rates	Interest rates down to 6%	Interest rates down to 6%
Overall sentiment	Fear	Fear
Market Cap to GDP	45	50

If we analyse what had happened in the past, we might be able to understand that we had the biggest bull market rally in the history between 2003 to 2008. We had seen global growth engines firing from all the angles.

With the global supply chain disrupted, central bankers and country leaders across the world pumping immense liquidity to bring back stability in their economies, we might see formation of a bull market in the mid of this crisis.

                                                                                                                                                                          © Statista 2020

As an Investor what we need to do is to buy businesses which will survive in this disruption and will be able see light at the end of the day. Companies which have good management, leader in the sector, having strong balance sheet, less leverage, lower fixed operating cost, having cash in the balance sheet and are innovate will survive. They will become leaders in the next bull market. 

Stay positive and stay safe