Emotions in a Stressed Economy – 3 Insights

“If investing is entertaining, if you’re having fun, you’re probably not making any money.Good investing is boring.”-George Soros


The decline in global growth and recession worry investors; however, many success stories have come up by those who bravely invested in 2008 to create a fortune for themselves in the past decade. New and retail investors are losing confidence in the market after investing in the past couple of years. Here are 3 Insights into the market that one needs to look into to understand the global economy slow down.

Indian Market: The last two quarters were alarming for investors to see the decline in growth and earnings

Economists believe that the current slowdown in India is a combination of cyclical and structural issues and will take time to fade away. The Government at the moment is closely monitoring all NBFCs along with the RBI to weed out all weaknesses in this sector and monitor its growth.

Though FY19 welcomed the economic reforms, it failed to support several sectors. The sale of automobiles dropped; the most prominent sign was when the country’s largest car manufacturer – Maruti cut down 50% of its production and laid off over 3000 contractual employees. Tata Motors and Mahindra and Mahindra have also halted production and shut down plants for several days. In the FMCG sector, HUL has experienced a drop in its growth figures. Meanwhile, companies such as Patanjali have witnessed a decline in their dealerships; they have even reduced their marketing expenses to bring down their total overhead costs. The root cause of this could be the reduction of the purchasing power of the consumer in the rural market.

Global Growth Worry: US-China trade war leading markets to recession talks

US long-term bond yield has dropped below short-term yield, thereby indicating a possible recession soon. The trade war between the US and China and President Trump’s disagreement with the Fed has led to increased doubt over economic growth. This uncertainty has pushed investors towards safe-haven assets (Gold). Trump’s tweets have not helped the case either; the markets have swung, discounting the few positive news in the economy. Traders are confused and fail to understand the signal and direction of the market.


Hone Yourself with Market Trends

Emotions play a vital role in staying invested in the market cycle. The Sensex has been alive for 38 years, 28 of which have been positive growth years. Staying invested during the market cycle will fetch maximum yield in equity markets.

Research houses suggest that the current slowdown is similar to what happened during the year 1998; several indicators draws a parallel between the two periods. Slow down can come from different areas of business and trade. Banks & regulators, today, are more alert as compared to 2008. All we should do now is to pick the correct stock and investment instrument which can produce maximum return once the economy gets back to a healthy condition. Right now is the time to put on the seat belts and not worry about things are beyond our control.

It is crucial to make sure to have an attitude to stay invested in the market to achieve your financial goals, rather than letting the emotions swing along with the market. Getting adequate knowledge from the right source is very important. Choose a financial advisor who understands the risk profile while keeping in mind the age and thus and advise you accordingly. Trust the advisor to provide the right attitude to stay in the stressed market.

Nobody can time the market, so, protect your portfolio through SIPs, diversification in US-based ETF, investing in structured products, and hedging your positions in trading. If you have chosen your portfolio to get high returns, you should also be able to bear the volatility. In case there is any aversion towards taking such risks; it is suggested that the portfolio might need a change from the highly leveraged instruments. This, however, should be done after making a little recovery instead of selling them at a substantial loss. Testing times like these remind us to keep nearly 60% of the net worth into liquid able assets (No Lock-in). Exiting the market at the wrong time is not the solution; seeking advice from a genuine Financial Advisor for the right approach to sustain through the rough seas of investing.

Written by:
Lavanya Kumardev