Markets poised for a slower recovery: What should be your investment strategy?

With partial to full curfew/lockdowns in place to control the second Covid wave, the adverse impact on the economy is already visible.

After an optimistic Budget – presented during an ebb in the number of Covid-19 cases – that projected a quick economic recovery, the second wave of the viral infection has thrown out the economy out of its recovery track again.

“The new wave of Covid-19 has impacted the economy and also the anticipated growth. The finance budget presented in February 2021 was appreciated and India was looking forward to strengthening its economy. However, the new Covid wave which is more contagious has disrupted the growth and the momentum,” said S Ravi former chairman of BSE and Managing Partner of Ravi Rajan & Co.

“The year 2020 had muted the growth and this will have deep impacts on our economy. Sectors like hospitality, tourism, aviation, manufacturing were the first to be impacted due the pandemic and resultant lockdown. The Government of India had introduced initiatives to help the industry via its Atmanirbhar series and even RBI had introduced various measures and allowed banks to do restructuring with moratorium. We were just about stabilising when this second wave has forced states to go for limited lockdowns and curfews,” he added.

Impact on Economy

With partial to full curfew/lockdowns in place to control the second Covid wave, the adverse impact on the economy is already visible.

“A quick assessment indicates that this second wave has impacted the growth and GDP. In the current quarter service activity has de-grown substantially, auto sales have dropped, FMCG and electronics sales have been impacted. Passenger car sales have dropped by 10 per cent as compared to March 2021 sales. As per some reports stores and retail outlets are already witnessing job cuts because of restricted movement and closures,” said Ravi.

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“The Reserve Bank of India (RBI) has already taken measures by providing liquidity for the health care sector, providing long term repo to small banks and providing special recast to individuals, small businesses and MSME. The impact of pandemic is going to have a long lasting blow as it seems to be here longer than one had anticipated,” he added.

With the markets poised for a slower recovery, what should be your investment strategy in equities?

Systematic Investment Plan

As a Systematic Investment Plan (SIP) ensures investments are made on a regular basis in both up market and down markets it reduces the risk factor through rupee cost averaging. Investments during prolonged low market phase will ensure accumulation of higher number of units, which would fetch higher return when the market recovers. So, for long-term investors, the current scenario is not proper for a lump sum investment, but for investments through SIP in equity-oriented Mutual Fund (MF).

Lump sum investment

With slower markets recovery, it would take longer time to fetch a desired return on lump sum investments on equity. So, instead of lump sum investment for the long term, it would be better to invest during every market dip and pull out during a subsequent spike as soon as a targeted small term return is arrived. To fetch real time NAV, Exchange Traded Fund (ETF) and direct stocks would be more efficient investment product than MF.