How can we handle stock market corrections as the second wave of the COVID-19 pandemic continues to spook investors?
Steep Fall & Second Wave
Last year, when the government imposed a nationwide lockdown, the stock market slumped about 40% in a span of two weeks. The indices bled again on Monday as the benchmark index Sensex declined 1,700 points on intraday trade due to increasing worries of complete lockdown in Maharashtra and other states in India.
At present, the country is struggling with the second wave of the pandemic and the cases are increasing in several states. States such as Maharashtra and Karnataka are looking to impose lockdown measures to control the spread of the virus.
Divided Thoughts
Analysts and experts are divided on whether there will be a stock market crash in 2021 like the one which happened in 2020. Some argue that there might not be a crash this year as we are not new to the pandemic. When COVID-19 spread rapidly across the world, the companies and people didn’t know what it was and how it will be dealt by countries across the globe.
But that’s not the case with the second wave. People as well as the Indian government have a better idea about the spread of the virus and the authorities understand what kind of strategies would work in controlling the spread and helping the economy. In a recent press conference, RBI Governor Shaktikanta Das said that the monetary and fiscal authorities are prepared to deal with the second wave. He added that economic activity is normalizing despite rising COVID-19 cases.
On the other hand, in the second wave, the infection is spreading at a much faster rate in India. India is recording over 1,50,000 cases every day, which is the highest that has ever been recorded in the country. A weak PMI manufacturing print for March as well as a jump in retail inflation for March has also increased worries on the growth and economic recovery front.
According to a survey of global fund managers conducted by Bank of America, reported by The Financial Express, if the US bond yields continue to push higher and cross the 2% barrier, a 10% stock market correction could be on the cards. A jump in bond yields is not good for emerging markets such as India as they lead to FII outflows.
Handling The Fall
Be it a market crash or not, it is important to not lose your cool and stay calm when the stock market significantly declines. Try not to panic and rationally analyse your investments. Below are some of the tips that can help you prepare for a market crash:
Always understand that it is better to stay invested for a long period, so you can let the power of compounding work its magic on your investments. You can choose less risky assets like debt funds and stay invested for a long period.
When you are reviewing your investment portfolio, try to see whether you have invested only in stocks. If so, try diversifying your portfolio by investing across funds and different asset classes of both equity and debt funds.
Keep liquid assets in handy so that you can buy stocks at discounted prices. You can also invest in mutual funds via SIPs as you will be allocated more units when the market declines.
Understand that the stock market will always be filled with ups and downs, and it is okay to not be able to accurately predict it. So, understand your financial goals and only invest in those instruments which suit your risk appetite.
We might not be able to accurately predict how the stock market will perform in the near future but what we can do is to be prepared if a crash occurs. The best way to handle any steep decline in the stock market is by being rational, making informed decisions and not following the herd blindly.
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