- Date : 01/09/2020
- Read: 8 mins
If you are willing to invest in the stock market, what will come handy is what comes naturally to a woman: patience, prudence, discipline, and a cool temperament
The stock market looked to be in a robust state after the end of the first six months of the year, with the benchmark Sensex and the Nifty50 rebounding close to 50% till July as compared to its March lows. This trend was visible with the mid-cap and small-cap indices as well, while global equity markets were similarly hovering near their 52-week highs – or even all-time highs.
Do all these factors make this a ‘safe time’ for a woman to invest? The thing is, in the current economic scenario, stock market recovery in itself may not be the right reason for investing; there are other reasons – irrespective of whether one is a man or a woman – that we shall explore later.
To come to the enthusiasm that retail investors have shown in the March–July period, financial experts have not quite figured out the reasons for it, especially as both businesses and people’s income suffered due to the lockdown. They are baffled by the rush for stocks with weak fundamentals – for instance, Ruchi Soya, which had filed for bankruptcy last year, saw its share price surging more than 8000%.
So much so, an investor wrote in to Dhirendra Kumar, CEO of financial advisory firm Value Research, for insight into the Sensex movement because it puzzled him: it was 26,000 when India had only 500 COVID-19 cases, but spiralled to almost 38,000 when the cases rose to 12 lakh.
The question is, why have the stock markets managed to stage such a dramatic recovery even though economists are forecasting the worst economic contraction since the Great Depression nearly a century ago?
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Ajay Tyagi, the outgoing chairman of the Securities and Exchange Board of India (SEBI), told The Economic Times that he was “perplexed” by it all, while media reports quoted RBI Governor Shaktikanta Das as saying that he saw “a growing disconnect between the movements in certain segments of financial markets and real sector activity.”
But the subtlest warning came from economists at the State Bank of India (SBI), who, in a note, summed up the “irrational exuberance” thus: “Beautiful markets do not signify a beautiful economy.”
So when the investor mentioned earlier asked Kumar of Value Research when a correlation between the ground reality and the Sensex could be expected, the latter confessed he had no answer, and argued that others, too, were as clueless.
“Everyone in the market is clueless about the current scenario and why there is such an anomaly between economic conditions and market behaviour,” he said. “It is very difficult to guess when the markets would see a correction – or if there would be any correction at all.”
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In some quarters, a comparison has been drawn with what is happening today, and the recovery in the capital markets after the 2008 meltdown. However, the pick-up in market activity back then had taken 17 months; the so-called market recovery this time around took just a few weeks.
So what could be the reason? Analysts have suggested five factors that could have proved to be the trigger: overall optimism, rate cuts, new investors, stability of companies such as tech companies and telcos, and vaccine development. Let us examine each of them:
- Overall optimism: Surveys have shown that many people look at the current scenario as more of a health crisis than a financial one, and as such, believe that a global recovery is not far off. Central banks certainly seem to be more prepared than they were in 2008 to deal with a crisis. Plus, recent PMI data show signs of recovery.
- Rate cuts: Central banks around the globe, including the Reserve Bank of India (RBI), have taken several monetary decisions to infuse liquidity and revive the economy.
- New investors: Many believe that the lockdown has created enough spare time for people to dabble in the markets for the first time. Angel Broking CEO Vinay Agrawal told Moneycontrol that “a good part of the working population has got some extra time to learn about financial markets and make investments… Hence, we’re seeing a surge in opening of demat accounts, especially with discount brokers.” (That could, perhaps, explain the Ruchi Soya rally).
- Stable companies: Companies such as e-commerce giant Amazon or telcos like Reliance Jio and Bharti Airtel have not been affected by the pandemic at all, and in fact, benefited from the new work-from-home system. It is believed this stability has infused confidence among the investing public.
- Vaccine development: Reports of positive results about COVID-19 vaccine trials in India and abroad have also helped calm frayed nerves.
The right time
It is against this background that one should explore the original question: is this a safe time to invest? But first, a point: if you are the one asking the question, it shows that you lack conviction while investing and are averse to taking risks.
People tend to ask this question when they are not fully convinced about the stocks they are eyeing, and are basically swayed by the share price movement: if the prices go down, they see the company as failing, but if they rise, they will lap up its stock.
In other words, they forget that stock markets will rise and fall – there is no escaping that. However, they also mustn’t pick up a share just as it reaches the bottom, and expect to to immediately start rallying. Timing the market of that kind borders on the miracle.
So, instead of being either unconvinced or risk-averse, consider this: even after recovering a bulk of the losses because of the pandemic, the Sensex ended June considerably lower while about 70% of the stocks in the Nifty 500 index fell; what if this is the bottom and you are still holding out? You end up missing an opportunity.
As Kumar of Value Research says, this is a good time to invest provided one is unfazed by the COVID-19 disruption and also has an investment horizon of 5–10 years. “This entire crisis or panic is a grim reminder that we just can’t predict what is coming,” he says. “But we can definitely control what’s in our own hands – time horizon, discipline, and temperament.”
Women and Investment
In case you are hesitant about investing on account of being a woman, remember this: you are invested with the same quality that Kumar says is important as an investor in the current situation – discipline and temperament.
It is a proven fact that women are intrinsically more prudent than men when it comes to money; they are natural savers, and that is making an investment. They tend to buy jewellery, yes, but that too is making an investment.
Women are also in general known to invest in time with family and friends, and that calls for patience; this is a plus – an attribute necessary to make a successful investor in the bourses.
If you are willing to invest in the stock market, what will come handy is what comes naturally to a woman: patience, prudence, discipline, and a cool temperament. Of course, you are strongly advised to seek out professional advice alongside.
When selecting stocks to invest in, take care to choose companies with strong fundamentals, i.e. companies that have been less affected than others by the COVID-19 disruption.
It is not as if all stocks have declined; the April–June quarter earnings show several businesses remaining unscathed, and they come from sectors as diverse as FMCG, agriculture, pharma, IT, and e-commerce.
Irrespective of the term volatility we have witnessed since March, the current crisis will also present some buying opportunities over the long term. The trick, however, lies in buying stocks of companies that will stand the test of time. It is here that patience and discipline will play a key role. Follow Kumar’s advice: stay calm, methodical, and make sure you are investing your long-term money in equity.
If you indeed enter the stock market, you should also improve your knowledge on how to analyse the fundamentals of a company; at a time like this, when no one can predict how the market will behave, it is better than constantly looking to see what others are doing and following them.
If you start assessing the worth of a business and its current share price, you will be able to take more studied decisions. As Kumar says, do not try to time the markets “because you might end up catching the market high at some point”. Know everything about active or passive investing and how to choose.
Disclaimer: This Article is intended for general information purposes only and should not be construed as investment, insurance, tax or legal advice. You are encouraged to separately obtain independent advice when making decisions in these areas.