Can the Fresh Threat of COVID-19 Push Indian Equity Markets Down and Cause Wealth Erosion? - Outside View by PersonalFN

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Can the Fresh Threat of COVID-19 Push Indian Equity Markets Down and Cause Wealth Erosion?
Feb 23, 2021

Despite witnessing some consolidation in the past few days, the Indian equity market continues to trade at all-time high levels. However, amidst the exuberance, there are reasons to be cautious about your investments.

Here is why...

Even after a year since COVID-19 began to spread India and the world continues to reel under the impact of the pandemic. Countries such as USA, Brazil along with many European countries have seen no respite in curbing the virus yet.

On the other hand, after reaching a peak of nearly 1 lakh new cases in the month of September, India witnessed a massive drop in cases in the subsequent months. But this success wave hasn't lasted long, on Sunday, India added 14,199 cases, making it the fifth consecutive daily jump.

--- Advertisement ---
No crash, correction, or pandemic can STOP This..

At last, it's happening...

Right here in India...three hidden mega-trends are converging for the first time ever to trigger an economic boom of unparalleled proportions.

A boom so powerful - no crash, no correction, and no pandemic can STOP India from becoming the next economic superpower...

And those who take advantage of this mega shift could potentially generate massive wealth for themselves and their families in the long run.

We are talking about  potential 1,000% gains...and perhaps even more over the long term.

But trust me, people who pass this opportunity will regret their decision in the years and decades to come...

So, if you want to save yourself from potential downsides of this mega shift...

...and instead, leverage on it for potential windfall gains...

Join us on 15th April at my special event...

We'll reveal the full details there.

Here's Your Free Pass to Our Special Event

[Read: How to Make Your Finances Pandemic Proof]

Several states in India have once again witnessed a spike in cases over the past few days, raising concerns regarding another wave of infection in the country. The total caseload now stands at around 1.1 crore. Kerala and Maharashtra continue to be the worst affected states, while other parts of country too have witnessed surge in net addition.

Recently, the Maharashtra government imposed partial lockdown in some parts of the state and banned all kinds of political, social, and religious gatherings to curb the rising cases. Besides, it has warned of stricter lockdown if people do not follow COVID-19 measures such as wearing masks and observing social distancing.

Revealed: 3 Stocks for Potentially Massive Gains

Impact of recent surge in COVID-19 cases on your investment

A second wave of infection and possibility of renewed lockdown restrictions will come as a severe blow to various economic activities that had just started to emerge out of the pandemic crisis. Moreover, it is likely to delay the return to normalcy, thereby affecting consumption growth.

Notably, one of the main reasons for the sharp rally in the equity market was the expectation of economic recovery as well as rebound in corporate earnings on the backdrop of receding COVID-19 cases. If the economic recovery does not take place as expected, the equity market could once again turn highly volatile.

[Read: Market May be Headed for Correction. Should You Book Profit in Equity MF Schemes?]

Fortunately, the vaccination drive against COVID-10 has begun and India is set to begin its next phase from March where around 25 crore beneficiaries will be inoculated. Furthermore, India's recovery rate continues to be among the highest in the world, while reports of the fatality rate have not registered an increase. Thus, the impact of the second wave may not be as harsh as compared to the previous one.

--- Advertisement ---
[Watch Now] 3 Little-known Stocks We are Super Bullish On

Click Here to Watch Now

How to invest in the current scenario?

The equity market is at an all-time high level and there is a possibility that it may have run ahead of fundamentals, meaning the downside risk in case of any adverse event could be high. Apart from the resurgence in COVID-19 cases and high market valuations, watch out for global cues that could pose a threat to Indian equity market.

Given the unpredictability of the world we are living in, it is important to create an 'All-Weather' portfolio to beat the impact of volatility.

To create an 'All-Weather' portfolio, diversify your investment across categories, sub-categories, and investment styles based on your risk appetite, financial objectives, and investment horizon.

Since no two asset classes move in the same direction always, it makes sense to invest across equity, debt, and gold, along with some portion on cash. For example, amidst the uncertainty looming in the year 2020, gold clocked highest returns, while the returns from equity and debt diminished. Remember, the right asset allocation is the cornerstone of investing and serves as a strategy in itself.

When you build a diversified portfolio of equity funds, opt for the 'Core & Satellite' approach to investing -- a time-tested strategy used by successful investors. The Core holdings will let you focus on the stable schemes with a long-term view; while the Satellite holdings enable you to capitalise on short-term opportunities.

Your 'Core' holding should comprise around 65%-70% of your equity mutual fund portfolio and consist of Large-cap Fund, Multicap/Flexicap Fund, and a Value Style Fund.

Whereas, the 'Satellite' holdings of the portfolio can be around 30%-35% comprising of a Mid-cap Fund, a Large-cap & Mid-cap Fund, and an Aggressive Hybrid Fund. If your risk appetite permits, you may also consider investing a small portion in Small-cap Fund and Sectoral/Thematic Funds.

Here are the benefits of following the 'Core & Satellite' approach to investment:

  1. Provides your portfolio with optimal diversification
  2. Reduces the need for constant churning of your entire portfolio
  3. Reduces the risk to your portfolio
  4. Helps you benefit from a variety of investment strategies
  5. Allows you to create wealth, cushioning the downside
  6. Holds the potential to outperform the market

The core and satellite investment strategy may work for you in 2021 and beyond.

If you wish to invest in a readymade portfolio of top recommended equity mutual funds based on the 'Core & Satellite' approach to investing, I suggest that you subscribe to PersonalFN's Premium Report, "The Strategic Funds Portfolio For 2025 (2021 Edition)". This premium report will help you build your optimum mutual funds portfolio for 2025 without any effort on your part. If you haven't subscribed yet, do it now!

When you invest in a diversified portfolio of equity funds, it will be beneficial if you stagger it over time, preferably through the SIP route. Note: If your financial goal is nearing (next 2-3 years), you would be better off gradually redeeming your investments in equity funds and reinvesting it in safer avenues.

Lastly, ensure that you conduct a periodic review of your portfolio and rebalance if necessary.

Author: Divya Grover

This article first appeared on PersonalFN here.

Join Now: PersonalFN is now on Telegram. Join FREE Today to get 'Daily Wealth Letter' and Exclusive Updates on Mutual Funds

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Can the Fresh Threat of COVID-19 Push Indian Equity Markets Down and Cause Wealth Erosion?". Click here!


More Views on News

How Millennials Can Overcome the Financial Challenges (Outside View)

Apr 14, 2021

The pandemic triggered an economic downturn, and millennials experienced layoffs and pay cuts, it affected their finances and ability to build wealth.

India's QE and the Stock Market (Fast Profits Daily)

Apr 14, 2021

In this video, I'll tell you how the RBI's new quantitative easing program could affect the stock market.

Don't Write Off This Sector Yet (Profit Hunter)

Apr 14, 2021

Will apps like Netflix deal a death blow to theatres? Find out here...

Best Banking & PSU Debt Funds to Invest in 2021 (Outside View)

Apr 13, 2021

PersonalFN explains the outlook for Banking & PSU Debt funds and the best Banking & PSU Debt funds that can be considered for investment in 2021.

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.

More Views on News

Most Popular

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.

4 Stocks to Make Your Portfolio Immune to the Second Covid Wave (Profit Hunter)

Apr 6, 2021

Rather than predicting the market, successful investing is more about preparing well and placing your bets accordingly.

If the Market Falls, I Will Do This... (Fast Profits Daily)

Apr 1, 2021

What should you do if the market falls? In this video, I'll tell you what I will do.

The Indian Real Estate Party Has Just Begun (Profit Hunter)

Apr 1, 2021

A favourable demand supply scenario makes a strong case for real estate prices.

The Dilemma of Investing in Bharti Airtel Views On News (Views On News)

Apr 1, 2021

Rahul Shah on whether Bharti Airtel will emerge as the next big thing in the Indian stock market


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Apr 13, 2021 (Close)