Market is Crashing…. Is it the Right time to Invest?

 

Market is Crashing…. Is it the Right time to Invest?

Stock Market is going down. All indices be it sensex, nifty and sector indexes are going down. Our Portfolio values are showing losses. Don’t Panic. It is the time to withdraw from Debt funds and to invest in the equity funds.

The most important thing now is to take precautions and utmost care to prevent us and our family from this deadly corona virus. When this corona virus deadly show will end stock market will also settle down. And then comes another life time opportunity to invest from where we can achieve higher returns.

Let us understand some natural phenomenon or behavior of the stock market:

-          In the Long Run, Market or economy of a country like India will definitely go up. And being a developing country growth rate is on higher side. Interest rates of deposits/loans in developed countries like USA ranges between 4-7% whereas it ranges between 6-10% like India.

-          As we all know nothing is permanent and constant. Change is the only thing which is constant.  Similarly Growth in the stock market or in our economy is also not constant.

-          It works in cycles of 4-7 years comprising of bullish run where everything is on rising trend and bearish run where everything is on declining trend like now.

-          This bearish trend is due to “Corona Virus”. In Past we have seen these trends various times due to various reasons.

-          Ups and Downs is a very natural phenomenon in the stock market. Every time it goes down it jumps back again and touches new highs.

-          As I have already shared this in my earlier post “Whento Invest in Stock Market?” that:

o   Generally PE Ratio of Nifty ranges between 10 – 30.

o   If NIFTY PE is around 10 to 15, then it is right time to Invest. Since Stocks are undervalued.

o   And If NIFTY PE is around 25 to 30, and then it is right time to Divest (encash the profits). Since Stocks are overvalued or we can say Share Values are at their Peak.

-          It was around 29 in the start of the year in “Jan 2020” when market was at its peak and now on 19^th march 2020 it is 18.63.

-          May be it will go down further and settle around 12-15. Then you can say time has come to invest more funds.

What to Do and where to Invest?

-          Since stocks are currently available at very cheaper rates. It is the time to invest.

-          Invest in Share market either directly in shares or indirectly in Mutual Funds to achieve your long term goals.

-          Don’t follow the tip. Follow the trend. Don’t wait for tips to come. Spend some time and do some screening and research before investing your hard earned money.

-          How to select stocks to minimize risk:

 

a.       Blue Chip Stocks or we can say large cap stocks i.e. top 100 stocks in terms of market capitalization. These stocks have given consistent returns in the past and most probably will give in future also. Hence these are considered less risky. Now almost every stock is available at attractive valuations.

b.      Companies having nil or very low Debts. High Debt ratio means high risk.

c.       Companies which have shown profits on consistent basis and more important is growth in profits every year. Past years financials to be reviewed to check the consistency in the profits.

d.      Companies paying dividends on regular basis should also be considered.

Don’t follow the Herd Mentality. Follow value Investing.