SMFS’ Market Outlook Synopsis & The Path Forward – August 2020
Hope you and your family are doing well and staying safe!
It’s been nearly 6 months since our market outlook. The world was so different at that time, the pandemic has changed so many things, in so many ways.
Looking at all the asset classes –
Equity markets crashed because of the pandemic; Sensex touched a low of 25,638 in march. That was the time we asked you – to not panic and to stay invested, to continue with your SIPs/STPs and in fact to invest more as we looked at it as a discount sale and once in a decade opportunity to invest more into Equities, in 3-4 instalments. A lot of you who had ample liquidity and were underinvested in equity took advantage of this crash. The markets have surprised everyone by the V shaped recovery since then.
From all-time highs, the indices are down –
- Sensex & NIFTY are both down ~ 10%
- Midcap index down is ~ 30%
- Small cap index is down over 40%
Debt also went through a rough patch due to the Franklin mutual fund debacle; Bank/Corporate FD rates have gone down a lot. But broadly speaking, long-term debt mutual funds have stabilized, however, going ahead they would be giving low returns, unlike the double digit returns of the last 6-12 months.
Gold had not performed from 2012-2019 but now is at an all-time high as the equity markets crashed and the near-term trend is likely to remain upward.
Property prices in major cities have gone down further due to the pandemic and any immediate recovery seems unlikely.
Going forward, it is very difficult to predict where the markets are headed in the short term. World over, interest rates are very low and liquidity is very high. Our Markets have decoupled from the economy and the ground reality of the pandemic in India.
Markets discount for the future and right now, the markets have discounted a couple of positives – if actual events turn out to be better than what is discounted by the market, prices will rise from here, if actual events turn out to be worse, markets will correct. Some of the things that markets have discounted are –
- An early return to normal activities based on a medical solution which is around the corner (based on vaccines that are in trial or sheer optimism).
- Current Account surplus in India – drop in oil imports, gold imports, trade deficit with China
- Expected GDP growth for FY21 will be negative BUT for FY22 will rebound very well courtesy economic packages announced by the Govt & RBI.
So, markets will move depending on how this pandemic unfolds further, if and when we get a vaccine and how fast the industry is able to resume full operations and what the new normal will be.
There is a high probability that markets will take a breather and head downwards, but we don’t think they will revisit the March lows.
So, just keep in mind that you are investing for the long term based on your goals and the sound principles of asset allocation. Equity is still the best asset class for long term time horizons. So please, continue with your SIPs.
For any lump sum investments, we recommend doing a Liquid to Equity, weekly systematic transfer plan over the next 6 months.
But above all, just stick with your Asset Allocation and do not get swayed by the negative market sentiments into any knee jerk reactions.