The Crash and After

Stock markets usually recover within three-five years of a steep fall. Here is how
soon can your portfolio get back into shape
Equity markets are facing another meltdown, more than a decade after the subprime crisis roiled
global markets. Such steep corrections - close to 30 per cent-plus in the last couple of months - can
make even seasoned investors impatient. So, it is normal for the retail investors to get jittery about
their future course of action at this stage.

Some investors may be thinking about exiting, anticipating a further crash, some may be thinking
about not putting more money in equities and preferring to wait and watch, while others may be
willing to continue their investments but with a lot of anxiety. A courageous lot may be willing to be
adventurous and put more money in markets to buy at what many people are saying are low prices.

Is This the Bottom?

Before deciding the course of action, every investor wants to know one thing: is the correction over?
There are no easy answers to this. "We are going through a period of unprecedented uncertainty.
The inability to visualise duration, economic impact (of lockdowns due to coronavirus), global
downtrend and uncertainty have led to markets spiralling downwards. To gauge the time to
recovery, one has to have a sense of India after Covid-19. The impact on businesses (micro, small,
mid & large), consumption, demand (internal and external), jobs will have a bearing on the
economy," says Prashant Joshi, Co-founder and Partner, Fintrust Advisors LLP.

Markets run ahead of time. Coronavirus is creating havoc in Europe and the US, major drivers of the
global economy. So far, India has remained relatively less impacted than the rest of the world,
though the number of infected is expected to rise in the coming days. The market has factored in the
worst. The only uncertainty is around the longevity of the lockdowns, both globally and in India.
"This time, circumstances are a little different. We have never witnessed a pandemic in living
memory, hence no one is sure about how long this will last, and what impact it will have on various
economies and sectors. The recovery could be a bit prolonged due to that," says Sousthav
Chakrabarty, Co-founder & CEO, Capital Quotient.

And if things deteriorate significantly, we may see another sharp correction. Otherwise, the markets
may remain range-bound, till they see some signs of normalcy. As per Tim Ord of Phillip Capital, up
to 90 per cent correction is over. He says the correction may continue till July when Nifty may see
7,000 levels.

Time to Recover

Another big question is: how long will the pandemic last? "We are at the mercy of discovery of
vaccinations and cures for this pandemic. This could take days, months, or even a year. What we
know is that once we have the solution, Indian markets will bounce back to normalcy. A time-frame
cannot be given yet, but yes, given that the crisis is not economic, Indian markets will resuscitate,"
says Tarun Birani, Founder & CEO, TBNG Capital Advisors.

However, past is a good indicator of the likely recovery period, as biggest crashes in past have been
followed by a robust recovery within two-three years. "If you see history, the market has a habit of
recovering fast. The crisis is always driven by deficiency of liquidity in the system. When asset prices
fall, money is parked into safer havens such as gold/dollar/yen. Once the government comes out
with a bailout, either by printing money or providing fiscal benefits, smart money again starts
chasing the asset. So, recovery will come, though its intensity is anyone's guess. Even if we fall
further, I believe we will be back in less than two years," says Vivek Bajaj, Co-founder, StockEdge.

Most experts say beginning of an

sustainable recovery will take at least two-
three quarters from here. "We expect stock
markets to be volatile, driven by efforts
that will shape the future. The stock
markets, over a period of eight to 12
months, are expected to take a definitive
path as earnings visibility and future
growth path for companies become clear,"
says Joshi of Fintrust Advisors. This means
any investing strategy should take into
account a prolonged recovery phase.

Different Shades of Recovery

Not all investors have been hurt equally

badly. The extent of loss and, hence, the
timing of recovery depend upon the point
of entry and mode of investment - whether
lump sum or systematic (Systematic
Investment Plan). "Investors who have
been in the market for more than five years
might have averaged out their
investments," says Hemant Sood,
Managing Director, Findoc Financial
Services Group. This means they would
have bought at lower levels, too, during the
period. In comparison, those who entered
the market one-two years ago will be
staring at losses.

That is why the recovery period will differ

for these two sets of investors. "Let me
give an example of an index fund. As on
April 1, 2020, the trailing returns on Nifty
Fund show an approximate dip of 24.7 per
cent for a period of one year, while for
three and five years, the returns are -0.9
per cent and 1.28 per cent, respectively.
So, 10-year and five-year investments will
take less time to recover in comparison to a
one-year investment," says Birani of TBNG Capital Advisors.

This means that the older the investment period, the lesser will be your loss and the quicker will be
your recovery.. However, you may have to wait longer to get to your desired return. "The annualised
return is a function of years you have remained invested. A longer duration means a longer period
will be required for recovery to meet the expected annualised return expectations," says Bajaj of
StockEdge.

Exit or Stop SIP?

Disheartened by losses, many investors may be thinking of exiting equities. However, the question is:
where will they invest? Bank fixed deposits (FDs) are giving a 6 per cent return. After tax, this is
much less. Some company FDs are giving more but come with higher risk. Gold has of late seen a
significant surge that is unlikely to be repeated in the medium term. Real estate is going through a
bad phase.

Our example (see Overall Equity Return with Recovery) shows that FDs cannot help you recover your
recent loss from equities even in five years. So, keep investing in equities, as that is your best chance
of a quick recovery. "SIPs should be continued. A lot of people do value SIPs, which means they
invest a large sum when the market is down and less when the market is up. But that requires active
engagement. If one cannot do it proactively, one should stick to the basic plan," says Bajaj of
StockEdge. Even if you are not comfortable with investing more, stop future investments, but let the
current ones continue. However, the best course will be to add equities when they are cheap so that
your average cost of purchase comes down and your equity portfolio gives a higher return whenever
the market bounces back.

Buy in Staggered Manner

If you have lost money and plan to make a quick buck by investing in current market conditions, it
may be a good idea to hold on for a while. "Historically, we have seen that markets can take
anywhere from 18 months to 48 months to recover if one has entered at the peak. It is advisable to
build a portfolio gradually (irrespective of markets levels) rather than allowing a single price point to
impact your returns," says Joshi of Fintrust.

Most seasoned equity investors make volatility their friend as they know that every correction
throws an opportunity to buy at lower levels. However, should you time the market and invest
surplus at the current level, or do so in a staggered manner? "Investors should increase monthly SIP
commitments. This will ensure they average adequately in any further downside we may see. For
lump sum investments, we recommend that one should invest only 30 per cent at current levels, 40
per cent at 10 per cent lower levels and balance 30 per cent only if there is a 20 per cent correction
from here. This will make the recovery much faster, in as much as 50 per cent lesser time,
mathematically," says Chakrabarty of Capital Quotient. Even if you are an adventurous investor with
high-risk appetite and wish to invest in the current market, do so only if you have a long-term
horizon.

It is not uncommon to find investors betting on wrong stocks which may not deliver result even
when markets recover. So, do a thorough research or take professional guidance. "It is important to
look at current holdings, the rationale for the holdings and whether they still make sense in today's
context. In every fall, we have seen investors averaging and holding onto the same stocks, sectors,
fund managers which never recovered, eventually to get disappointed. It is advisable to seek
professional advice," says Joshi of Fintrust.

Most of the time, companies that take a lead in market recovery are different from the leaders in the
last cycle and only experts can identify these opportunities. "After such severe meltdowns, markets
always have a recovery cycle. However, constituents which have led the recovery in previous
upcycles (sectors, stocks) have not always been the same," says Joshi of Fintrust. A better way for
you is to stick to mutual funds and let experts handle your money.

XXX