INVEST SMARTLY KEEPING A LONG TERM VIEW

Outlook Money|June 2020

INVEST SMARTLY KEEPING A LONG TERM VIEW
The pandemic has highlighted that investment rules like asset allocation and diversification should be strictly followed
Aparajita Gupta

The novel coronavirus (COVID-19) pandemic has made the world go on a roller coaster ride, impacting every aspect of life. After attacking human health, it has spread its tentacles on the global economic health and India is no alien to it. Even though Indian government has started lifting lockdown on industrial activities in a phased manner, it will take a long time for normalcy to return.

Investors have seen long-accumulated profit getting wiped away within the blink of an eye. However, as people begin rebuilding their lost asset, they scout for various options. This is the right time to invest in stocks of good companies, which are now trading at dirt cheap prices. Even investing in Systematic Investment Plans (SIP) is a good option. And gold is always a safe haven when equity market is volatile.

However, every investment should be done for a longer period to yield better returns, even though the results of recovery could be visible only from the second half of the current fiscal 2020-21 (FY21).

The government has rolled out an economic package worth ₹20 lakh crore to provide necessary shots to various sectors. To revive economic activities through its Atmanirbhar Bharat Package the government has put much stress on the MSME, even by revising the definition of the sector.

The government’s self-reliant package has focused on liquidity, land, labour and laws.

Needless to say, it took lot of liquidity measures like ₹3 lakh crore collateral-free automatic loans for businesses, including MSMEs, ₹30,000 crore liquidity facility for non-banking finance companies/ housing finance companies/microfinance institutions and ₹45,000 crore Partial Credit Guarantee Scheme 2.0 for NBFC that would benefit a lot of stocks directly and indirectly. “The first quarter of FY21 appears to be extremely challenging. I don’t see the impact of lockdown abating until we have more relaxations and the virus situation is under control. For the full year, India may just eke out minuscule growth, led by a possible recovery in H2. We see growth to be under the two per cent mark, based on return to normalcy in the second quarter and subject to a transition towards reopening, by end of Q1FY21,” says Rahul Jain, Head, Edelweiss Personal Wealth Advisory.

The pandemic-led lockdown has led to equity markets taking a severe hit. Traditional investors who typically invest in fixed income instruments such as bank deposits, bonds and debentures, have remained unscathed. The recent correction however, has once again highlighted, that investment rules like asset allocation and diversification, should be followed at all times.

Even government has drastically slashed interest rates for small savings scheme for the first quarter of 2020-21, which means popular small savings schemes like Public Provident Fund (PPF), National Savings Certificate (NSC) and Kisan Vikas Patra (KVP) would yield lesser return now.

The PPF interest rate was slashed by 80 basis points and will now give 7.1 per cent return, while NSC will give 6.8 per cent and KVP will give now 6.9 per cent returns. Thus the average earnings of a person from various investments has already come down drastically.

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June 2020