Whenever a stock or benchmark index falls more than 20 per cent from its peak, it is defined as a bear market. If we look at the benchmark indices Nifty & Sensex, you’ll notice that both indices fall more than 30 per cent from its peak amidst coronavirus. Undoubtedly, we’re in a bear market and if we follow the advice of experts, it is the best time to invest in stocks. But, is it? – Because the panic selling in the market is indicating that investors are not ready to take that bet. If anything they are focused on is how to survive in the bear market. While they are at it, many investors pulled everything out of equities and decided to go with other investment-class. However, some courageous investors are buying aggressively by looking at the discount prices. Of course, some are holding on to their investments and playing dead.
It is hard to think that if anyone escaped from the carnage due to coronavirus. Many investors incurred substantial losses due to over-exposure to the equities. It is was all of a sudden that investors couldn’t anticipate this. On top of that, many foreign and domestic institutional investors also pulled their money back from the capital markets. But, it is no longer the coronavirus outbreak worrying investors but also the economic impact of the lockdown across the country. It is not the type of financial market crisis that can be addressed by monetary policies or interest rate cuts. The impact of worldwide lockdown can have its effect for months and expected to last longer than the previous financial market crisis. Due to which it will take quarters for businesses or sectors to bounce back.
What Investors Should Do Now – Buy, Sell or Hold?
Now investors are in the dilemma whether they should buy, sell or hold. In the current phase, the foreign investors already pulled approx. Rs. 60,000 crore from stock in just one month, however at the same time, the domestic investors poured approx. Rs. 50,000 crore in the market. But, if the sentiment remains the same, even domestic investors will start exiting. It is the first time, the advised and DIY-investors both groups suffered substantial losses in the market. Some investors were lucky to exit the market in time. But, a large percentage of investors decided to use the ‘Play Dead’ strategy to survive in this bear market. They are holding onto their investments, waiting for the bottom. Once the base is formed and an upward move is confirmed, they will make a move.
The history suggests that it takes some time for bottom formation from 10 to 27 months and we are not there yet. Besides, we have fallen just 30 per cent in 2 months so the downward trend likely to continue. Many experts stick to ‘Buy on the cannons. Sell on the trumpets’ means – buy when the market is low and sell when the market is high. According to them, the investors should now be buying equities slowly in a staggered manner as the bottom is not formed yet. Investing in stocks in a bear market like this could lead to big returns over the long-term. However, in doing so, the investors should take it slowly in a staggered manner because aggressive buying can backfire as we don’t know the bottom yet.
Investors should be on the lookout to the fundamentally strong stocks because they will be the first one to bounce back when the market starts to recover. Investors who are in the market to make long-term investments can benefit from discounted prices to buy at low and sell at high. Many Nifty50 stocks are at their 52-week lows which allows investors to benefit from discounted prices and buy stocks of blue-chip companies to make long-term investments.
Disclaimer: The views and opinions at Invest19.com are expressed by the experts are for educational purposes, not to profile any professional advice to encourage users to make investments. Invest19.com advises users to check with the certified experts before making any investment decisions.