One of the big and worrying news stories of recent times is the story of India experiencing the worst economic contraction of its independent history. What is troubling is that this economic downturn owes itself only partly to the coronavirus pandemic. Our economy has suffered the brunt of mismanagement and poor policies for years now. On the other hand, however, is the stock market that seems to be performing far better than the nation's economic indicators would suggest. What are we to make of this?
As India went into that first, most draconian lockdown announced with just a four-hour notice, large sections of the unorganised sector were plunged into disarray. Small businesses shut down and employees were thrown out of jobs with zero time to prepare for temporary closures. Millions lost their jobs and many of those that still had jobs were forced to endure delays or cuts in their income. People’s ability and willingness to save and invest also dropped consequently. With a contraction of nearly 24% in the first quarter of this financial year, there can be no doubt that the Indian economy has suffered terribly.
However, things have been somewhat better when it comes to the stock market. It has been a volatile year for the stock markets. While there have been sharp falls and steep rises, overall, things have looked good. This is because corporate earnings and other economic indicators seemed to be on the correction course.
As the lockdown eased and more and more businesses resumed functioning, market sentiment was largely optimistic. The fact that the economy is showing signs of limping back to normalcy – the second quarter showed a contraction of only 7.5% – adds to that optimism. Financial experts predict a viable recovery scenario over the next year or so.
With so many experiencing income contractions and joblessness, contributions to SIPs fell significantly and many were selling off mutual funds. However, experts view the near term future with some hope. There is the expectation that interest rates and inflation will remain low and market liquidity will not be a problem. Normalcy returning to currently dormant sectors like tourism, theatres, hospitality will further increase optimism. So there is no reason to panic and experts advice that investors should steer clear of any knee jerk responses.
Right now, investors should prioritise their retirement financial goals to secure their long term future. Economic activity as well as foreign investments are expected to rise in the near future. Hence equity is still one of the best investment options. While the markets may be volatile on a day to day basis, the long term sentiment remains optimistic.
Mutual funds remain a great option for investors. Investment in immovable property remains a good option so long as one has done sufficient research into the location, builder and likely future appreciation of the property. The pandemic has highlighted that we all have emergency fund requirements when we experience an unprecedented disaster such as this pandemic. Hence investments should be diversified in a way that all one's money is not locked up for very long durations and easily remains accessible when the need arises. All in all the future may not be as bleak as the shocking numbers from the first quarter indicated.
Do you have something interesting you would like to share? Write to us at [email protected]
