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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Chinese virus and Indian markets

Posted by Muthu on March 26, 2020

In 1918, an influenza pandemic, popularly known as Spanish Flu (though it did not originate in Spain) infected 500 million people, equivalent to one third of global population then. Out of the 500 million people, it is estimated that at least 50 million died. So around 4% of global population was killed by the virus then.

It was the time of World war I. No social distancing was followed. Information flow was heavily curtailed due to war time. Compared to now, the medical advancement was abysmal and so was the necessary infrastructure.

The Coronavirus, COVID-19, should deservingly be called as Chinese virus, for the way China mishandled and lied about the crisis, especially in the initial months. This Coronavirus is the most serious epidemic, occurring after 100 years of last such epidemic in 1918.

The world though was complacent initially has now become aware of seriousness of the problem. India too is currently under 21 days lockdown. The world is better equipped and informed now to handle the problem. Though it may be some time before peaking out, various measures taken by all affected countries would yield fruits over a period of time.

When there is complete lockdown, economy and it’s growth suffer drastically. It wouldn’t be a surprise if our GDP growth, already low, can go down further in 2020-21. The poor who form major portion of our population are the first ones to go through maximum pain due to lockdown and also reduction in economic growth. To help the economy, many countries and their central banks have announced various relief measures and packages.

In the coming days, both the central government and RBI is expected to come out with such similar relief measures. This would alleviate the suffering of the economy.

When we make investments in markets, it is very difficult to anticipate and plan for very rare black swan events like this. In the matter of few weeks, markets fell by 40%, the fastest fall ever. Markets hate uncertainty. It can withstand any bad news provided it is able to anticipate when it would end. This uncertainty is what created huge fall and extreme volatility every day.

This is bound to continue for some more time, till markets get confident that the contagion is peaking out. With all countries taking lockdown measures seriously, this should hopefully happen sometime this year.

I feel by this time next year, things would be far better; in terms of epidemic control, improved economy and markets.

Though nothing prevents early recovery, I would like you to assume that the pain would last for a year. It is not wise to judge performance of any asset class, more so equity, when such unexpected catastrophe happens. These are rare exceptions.

All of you have online access to your portfolio. I would sincerely advise you to stop looking at your portfolio for months to come. For the first time, we are not going to do year end review. With many portfolios becoming deeply negative and the uncertainty expected to last some more time, there is no point in any review now. We would not be sending your portfolio reports as well, though you can access it any time online. When everything is deeply negative, the best protection you’ve against taking any impulsive decision is by not looking at portfolio. We should not end up converting temporary losses into permanent losses.

It is fine if you lack money or conviction to buy in these market conditions. But don’t ever sell anything. Don’t stop your SIPs. The very purpose of SIPs is to make you buy more units in bear markets. With the same amount of investments, you are now getting lot more units. The effect of which would be seen in subsequent bull market.

Both in good and bad times, we think it would last forever. The reality is that everything is cyclical. Good times would definitely come back. All you need is patience.

During last century, humanity has progressed a lot; despite Spanish flu, world wars, millions getting killed by tyrant dictators and so on. Trust that we would continue to grow and progress. What we are now going through is a temporary problem. Human resilience is more powerful than all these problems. Sooner or later, we would overcome this.

What you need to do is simply stay the course. Don’t panic sell and make notional losses into permanent ones. At any cost, don’t stop your SIPs. I humbly request to avoid looking at your portfolio for some more time to come.

Your temperament would decide your investing future. Keep calm. Trust me, this too shall pass.

 

2 Responses to “Chinese virus and Indian markets”

  1. R K Mittal said

    Excellent mail

  2. Raju said

    Sir, I follow you in twitter. I hope you might like this video – https://www.youtube.com/watch?time_continue=81&v=G1d-42_hZ0E&feature=emb_title

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