The rapid spread of the novel coronavirus (COVID-19) across the globe has got investors worried about the impact on the financial markets, especially equities. In such a situation, the question on the minds of investors is whether to stay invested or exit.
Equity Markets vs Coronavirus
Equity indices worldwide, including India, had a tumultuous 2020. The Dow Jones and FTSE 100 indices tanked ~26% and 25% respectively, while emerging market indices RTS (Russia) and Bovespa (Brazil) plunged 35% and 37%, respectively, on year-to-date (YTD) basis till March 25, 2020.
The story was no different back home with the Indian benchmark indices (S&P BSE Sensex and Nifty 50) down 31% and 32%, YTD. In fact, trailing the manic global sell-off, benchmark indices saw their biggest one-day point’s fall with the S&P BSE Sensex down 3935 points and the Nifty 50 declining 1135 points on March 23, 2020 giving a massive jolt to investors’ confidence.
The Panic Sell-offs
While everything looks like all doom and gloom, investors should note that markets, especially equities, tend to be volatile in the short term. Such bouts of negativity have been witnessed previously during health scares such as swine flu (2009) and pneumonic plague (1994), and economic downturns such as the Global Financial Crisis of 2008 and the Harshad Mehta scam of 1992.
Short-term Corrections
Sharp corrections in the equity markets often result in investors taking hasty investment decisions such as exiting the market by redeeming investments, or mimicking the actions of a larger group (herd mentality: everyone is selling, so let’s sell, or stopping investments). These, however, are not prudent ways of investment management. Such movements derail the long-term financial goal planning of investors and affect their risk-return profile.
Long-term Perspective
Investors should avoid falling prey to emotional biases (fear) and instead, should stay invested for the long term to derive optimum returns. Stay calm, focused and invest systematically over the long term. Market corrections will come and go. But it is important for equity investors to stay invested for the long term.
| Mutual Fund Name | AUM (₹ Cr) |
|---|---|
| HDFC Mutual Fund | 382805 |
| ICICI Prudential Mutual Fund | 366853 |
| SBI Mutual Fund | 353018 |
| Aditya Birla Sun Life Mutual Fund | 250152 |
| Nippon India Mutual Fund | 205158 |
| Kotak Mahindra Mutual Fund | 177198 |
| UTI Mutual Fund | 157119 |
| Franklin Templeton Mutual Fund | 127599 |
| Axis Mutual Fund | 122924 |
| IDFC Mutual Fund | 104837 |
| DSP Mutual Fund | 77213 |
| L&T Mutual Fund | 71587 |
| Tata Mutual Fund | 52678 |
| Mirae Asset Mutual Fund | 39349 |
| Sundaram Mutual Fund | 31469 |
| Invesco Mutual Fund | 25197 |
| Motilal Oswal Mutual Fund | 20393 |
| Canara Robeco Mutual Fund | 17298 |
| LIC Mutual Fund | 16624 |
| Edelweiss Mutual Fund | 12415 |
| HSBC Mutual Fund | 11605 |
| Baroda Mutual Fund | 11153 |
| BNP Paribas Mutual Fund | 7731 |
| Principal Mutual Fund | 6730 |
| JM Financial Mutual Fund | 5683 |
| Mahindra Mutual Fund | 5258 |
| IDBI Mutual Fund | 5121 |
| Union Mutual Fund | 4285 |
| PGIM India Mutual Fund | 4042 |
| PPFAS Mutual Fund | 2770 |
| BOI AXA Mutual Fund | 2323 |
| Quantum Mutual Fund | 1537 |
| Indiabulls Mutual Fund | 1453 |
| IL&FS Mutual Fund (IDF) | 1259 |
| IIFL Mutual Fund | 1232 |
| Essel Mutual Fund | 856 |
| IIFCL Mutual Fund (IDF) | 561 |
| Taurus Mutual Fund | 431 |
| YES Mutual Fund | 395 |
| Shriram Mutual Fund | 185 |
| ITI Mutual Fund | 170 |
| Quant Mutual Fund | 82 |
| Sahara Mutual Fund | 50 |
| Grand Total | 2686797 |
Data as of Dec’19
Source: CRISIL Research