Why Crisis is the Time to invest

A large number of investors are worried about what is transpiring in global markets. The most advanced economy – the US-- is impacted considerably. After the fears of recessionary slowdown, the banking sector in the US is facing large-scale tremors. Very few investors anticipated banking sector to come under pressure in a regulated economy such as the US.

In most cases, investors would have believed a crisis in the real estate industry in the US due to rising interest rates However, the rising interest rate regime hit the Silicon Valley Bank (SVB). Though the US Federal Reserve and other stakeholder holding the policy-making bastion in the US have been prompt enough to step in and announce that deposit holders’ interests are protected. Since the debt and equity holders of SVB are going down with the bank, the shares of other vulnerable banks are also under pressure.

Investors are trying to run away from risk. Gold has bounced back as investors searched for safe haven. Many experts have drawn a parallel between the Lehman Brothers Meltdown in the Global Financial Crisis in 2008 and the SVB Bank collapse in 2023. You may have read a lot of analysis around the closure of SVB bank. These analyses may have impacted confidence of many investors – both in the US and across the world. There is no doubt that this is going to end soon. After the pension crisis in the UK towards the end of CY2022, many were reminded of the old saying – there is never just one cockroach in the kitchen when you start looking around. In the context of these facts, let us understand the situation in the Indian markets. Read on:

We don’t know how the crisis in the US unfolds and how many more such challenges would emerge due to the domino effect. Some may argue that this is just the beginning and there is a lot of economic damage yet to come. And some experts may point out to a series of failures – startups going down, dried IPO markets, pension crisis, and the SVB failure. They may argue that the worst is behind us and soon we will see the rates go plateau if not go down.

This is however, not the time to keep guessing about the future. We tend to overestimate the short-term risks and under-estimate long term opportunities. Human brain is wired to do that. However, smart brains always keep a track of the Big Picture. Take any crisis in economic history, in all cases, eventually the markets bounced back. The optimism takes over. One who remains invested and keeps gradually adding to the investments emerges winner.

At this moment of time, though the world is under pressure, the Indian economy has exhibited reasonable resilience. There is no real pressure on our fundamentals. The fear of rural slowdown caused by EL-Nino is already priced in. It is time to keep a tab on our investments without missing the big picture of growth. Export-focused sectors may see some pressure for some more time. And the prices in IT, Pharma, Textile exports are very much vocal about it. If the interest rates are somewhere close to peak globally, then we too may benefit with lower cost of funds. And as interest rates come down, the flows will start in the emerging economies including India. India's domestic economy is doing well on the back of the capex cycle picking up with the government's thrust. And corporate earnings growth is going to make it big – typically in high teens.

This entire process of sustainable high economic growth may take some time. Nowhere I want to suggest that the markets are about to take an upward move. The markets may remain volatile and this can be unnerving. But that throws a big opportunity to all of us in the equity markets. Savvy investors should aggressively invest at this juncture. Large & mid cap equity schemes should be the focus area. Aggressive investors can also look at multi-cap equity funds. Systematic investment plans and systematic transfer plans are better means to stagger your investments in equity funds. For investors with moderate risk profiles balanced advantage funds and dividend yield equity funds can also be considered with a view to hold for a minimum five years.

Some of you may say that all this is easier said than done. Volatility has a strong bearing on any investment plan. But you have to be alert. You make your investment plans more dynamic with a view to make them more resilient. In that case, an exposure to gold and silver through Fund of Funds (FOF) from Edelweiss and Motilal Oswal Mutual fund can be rewarding. Exposure to precious metals should help your portfolio with equity allocation less volatile.

Disclaimer: Investments in mutual funds and other risky assets are subject to market risks. Please seek advice from an investment professional before investing.