What are the global cues that you need to follow amidst the COVID-19 crisis? Should you be cutting your exposure to public markets at this point in time? Is it a buyer’s market? What should you look at in the private market?
In this edition of the LetsVenture Silver Linings Playbook with Jinesh Gopani who heads equities at Axis Mutual Fund, we talk about the impact of COVID-19 on the global economy and financial markets. Jinesh draws a comparison between the present economic crisis and the one in 2008 and goes on to share his perspective on how Indian markets are likely to react in worse case scenarios.
Some highlights from this no-holds-barred webinar:
Economic meltdown: COVID-19 vs 2008 Global Financial Crisis
The year 2008 witnessed the global economy taking a nose-dive of around 60% in a period of six months. The situation today is bleak and might put shackles on the economy, but governments across the world understand the value of liquidity. They have learned their lessons from the 2008 financial crisis and are therefore implementing steps to curb the impact of COVID-19 on economic growth.
COVID-19 has hit the markets at scale & speed!
Indian markets subsided to almost 35% from peak within two weeks, one of its most rapid falls on point with similar cliff drops on the Dow and S&P in the US. One may think that hedge funds will eventually dry out leading to a liquidity jam, but this is unlikely to happen, all thanks to the unlimited quantitative easing by the US Government. The US Federal Reserve can now buy an unlimited amount of government debt, as well as corporate and municipal bonds, in the biggest expansion of its balance sheet in history. There won’t be a liquidity jam, but markets will remain financially unstable in the nearing quarters.
Where to invest?
In the wake of this situation, stocks of numerous companies in both private and public markets are at a discount and attractive valuations and Jinesh suggests, “If you have liquidity in hand, invest!” But he also warns investors to stay invested for 3 to 5 years.
Jinesh asks investors to invest in both large-caps and mid & small-caps. While the large caps are more stable in the long run, mid & small caps are innovative and agile. There is a great probability that some of these mid-sized firms grow fast.
When asked about the sectoral impact of COVID-19, Jinesh said that aviation, real estate, hospitality, tourism, and entertainment sectors will be the worst hit. These verticals might undergo a fundamental change altogether. On the other hand, sectors including pharma, tech, FMCG, insurance, supply chain, and banking should do well at the beginning of the ‘new economy’.
Watch the full webinar here:
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