Coronavirus & Investing:- Ways to tackle the Market Crash

At home, work or even while commuting, the topic that is dominating every conversation today is Coronavirus and its impact on one’s health, the stock markets and wealth.

Coronavirus or Covid-19 has spread faster than expected. With more than Seventy thousand deaths and more than Thirteen lakh affected across globe, there is no cure so far. In fact, the World Health Organisation declared it to be a pandemic, a  first since the outbreak of Swine Flu or H1N1. 

Like every other time, i.e. whenever reports of any pandemic outbreak came into light, the impact of Coronavirus is high across the financial markets, with major world indices witnessing sharp corrections in the last two months. Taking cues from its global peers, SENSEX has lost 27.29 % or more than 11,200 points in the last Two months. We analyzed from last two months data.

Country	Indices	As on 11th Feb 2020	As on 6th & 7th April 2020	Gain/Loss (%)
United States	Dow Jones Ind	29276.34	22679.99 (6th April)	-22.53
United States	S&P 500	3357.75	2663.68 (6th April)	-20.67
United States	NASDAQ	9638.94	7913.24 (6th April)	-17.9
United Kingdom	FTSE 100	7499.44	5739.19(7th April)	-23.47
Germany	DAX	13627.84	10442.10(7th April)	-23.38
Hong Kong	HANG SENG	27241.34	24253.29(7th April)	-10.8
Japan	NIKKEI 225	23685.98	18950.18(7th April)	-20
India	SENSEX	41216.14	29968.11(7th April)	–27.29

These corrections have created massive panic among investors, with many of them selling significant portions of their equity investments to buy fixed income instruments like fixed deposits. In contrast, another section of investors are in the dilemma of ‘to buy, or not to buy’ at such discounted prices. 

In this blog,  we have analyzed how the markets had reacted in the past to such reports? How much time did they take to bounce back to make wealth for investors? 

How the Market Reacted during Past Pandemics?

Since the outbreak of Coronavirus, the markets saw sharp corrections, and the selling pressure will continue for some more time. But, this is not the first time! During previous pandemics too, markets fell sharply only to emerge stronger than ever before. However, you have to be stay invested to benefit from it.  And, there is enough data to support this claim

We looked at the SENSEX performance during the past pandemic outbreaks of SARS, AVIN Influenza, Ebola, Zika, and a bit later Swine Flue. We also analyzed what happened after the markets stabilized.

Here is what we found:

Past Pandemics and Sensex
Estimated Period of Outbreak	Virus Outbreak	Returns During Outbreak	1 Year Return Post Outbreak	3 years Post Outbreak Returns
Jan to March 2003	SARS	-10.07%	77.68%	269.99%
Jan to August 2004	AVIN Influenza	-12.23%	47.42%	195.04%
December 2013 to Feb 2014	Ebola	1.06%	44.44%	36.09%
Nov 2015 to Feb 2016	Zika	-13.39%	13.36%	55.93%
1 Jan 2015 to May 2015	Swine Flu	-6.91%	-4.24%	26.83%

Similar to Coronavirus, outbreak of SARS had its impact on global as well as Indian stock markets. Sensex fell by 10 percent in three months. But, one year from then, it generated an absolute return of more than 77 percent. This means if you would have invested Rs 1 lakh in the index early in January 2003, when fears of SARS hovered over the markets, within a year, the same investment would have grown to become Rs 1,77,000. 

Markets reacted in a similar way to Ebola, Zika, and AVIN, i.e. correcting sharply and then bouncing back aggressively. 

However, with Swine Flu, it took time for recovery because as the scare of the virus was cooling up, the fear of global economic slowdown spooked the market. But once the recovery began, the losses got wiped off quickly and the 3-year returns from the time Swine Flu broke out were 26.83 percent

As you can see from the data above, the markets sooner or later do recover. But until that happens, most of us would be wondering what we should do. The questions we are getting are mostly in these 4 major buckets and here is our view on those.

1) Should I redeem now and re-enter later?

The issue with this approach is that you never know when is the right time to re-enter. There is a saying that more money is lost in waiting for corrections than corrections themselves, so it’s better to be in the market than exiting now, enter later approach. There is another saying which reinforces this approach. Time in the market makes more money than timing the market. What all of this means is that you are more likely to benefit if you stay invested and ride out this period of volatility.

2) Should I Invest more now?

While the common saying is don’t try catching the falling knife, this is a good time to add more to your existing investments if your asset allocation plan allows it. What it means is that if you are under-invested in equities or the value of your Equity Portfolio has come down drastically, you can use this time to bring the mix to the level you want to maintain as per the desired levels. Adding to your Equity Portfolio at a lower cost would bring down your overall costs and chances are high that this action would set your Investments for success. 

3) I want to Invest more. Should I wait for more correction? 

Well, if your current asset allocation gives you the flexibility to invest more, waiting might not be a great idea. That’s because sharp correction may be followed by equally sharper rise too. So waiting for further correction may deprive you of lower prices. Missing out on a chance of getting your asset allocation right at lower prices won’t leave a good feeling if you witness a sharp recovery without getting a chance to invest 

4) I don’t have the cash to invest more, how do I just witness doing nothing?

It’s perfectly fine to be inactive. It is not necessary you buy or sell just because someone else is doing the same. If you have SIPs running, they are already doing the job of making sure you invest in these falls and your overall costs are going down. However, you can definitely increase your SIP amount for the next 6-12 months if you don’t have any lumpsum cash at hand. If markets see more of a gradual recovery, you will still be able to take advantage of these volatile times. So either start another SIP in your existing fund or modify your SIP and increase its amount. 

Bottom line: This too shall pass

If you look at the history of equity markets, there have been plenty of crashes and for a variety of reasons. From pandemics like this to bursting of bubbles. But after every crash, there is a recovery and it will happen in this case too. A cure or a vaccine for coronavirus will be found and life will go back to normal, just like it did in the past. It might take a few months or even a year, but our ability as humans to survive these kinds of challenges is high.

So keep calm and before you redeem your investments, take a pause and think in 5 years down the time, you wouldn’t even remember this phase, just like past pandemics. At the same time don’t go overboard with investing. Let your asset allocation dictate how much or if you should invest. Crashes and all-time highs will happen in the future too so use this time to be ready for whatever happens in your investment journey.