If you are an investor with patience, will make good money in equity funds

By Prasanna Pathak

As the global economy witnesses some of the sharpest downfalls in history amid the coronavirus pandemic, it is hard to believe that this may be a good time to invest in the stock market.

March was unprecedented. Sensex and Nifty were down 23 per cent in the backdrop of the spread of Covid-19 cases across almost 198 countries, further worsening the already existing global slowdown.


FIIs’ sold close to $8 billion in equities in India, the rupee depreciated to the 76 level, crude oil fell below $20 a barrel, unemployment rates skyrocketed and central banks across the globe resorted to extraordinary fiscal and monetary measures.

There was no dearth of action. With respect to India, Prime Minister Narendra Modi declared a nationwide lockdown beginning March 24, which has resulted in the halt of 70 per cent of the economic activity.

If the outbreak worsens, we could see an increased probability of the country entering into a recession with the economy taking at least 9-15 months to recover. We expect the government to likely use more fiscal measures to stabilise and grow the economy.

On the earnings front, the actual impact of lockdown will be only of 10-12 days for the March quarter. However, the backdrop before the lockdown was also grim. Hence, we expect Q4FY20 to be muted. Also, revival of demand and issues with MSE/MSME and banks will take longer to resolve. Hence, we are not very optimistic on FY21 either. However, FY22 and FY23 may surprise many analysts, as we expect all the latent demand to bunch-up as also the revival of the capex cycle in the backdrop of low interest rates and cheap capital.

We are more positive on the medium term prospects due to 1) sustained lower crude prices, 2) cheap global capital (positive interest rates in most economies), 3) lower domestic interest rates, 4) possibility of emergence of India as an alternative to China once the Covid issue settles, 5) unlimited QE by the US Federal Reserve and other central bankers, which will again restore global liquidity and part of it will flow to emerging markets again.

My advice to the clients is that do not expect a V-shaped recovery immediately. The markets/asset classes will consolidate for 5-6 months. There will be volatility. The economy may take longer to recover. However, since the equity market tends to discount the next two years earnings, recovery may be quicker. It is difficult to find a bottom and hence invest systematically. Use the next 3-6 months to invest in good stocks and mutual fund schemes etc. A patient investor with a 2-3 year time horizon is bound to generate handsome returns by investing in these times of uncertainty and fear.

(Prasanna Pathak is Head of Equity at Taurus Mutual Fund)