The calendar year 2019 has been difficult for investors, with both debt and equity markets showing high volatility. Returns are negative in equities and low in debt and the extra risk for returns theory is not working.
There is also high uncertainty in the markets, on both the domestic and global front. On the domestic side, election uncertainty has heightened political risk. The economy is showing weakness with low growth in industrial production and weak corporate guidance given falling consumer demand. Topping it all there is a credit crisis with defaults by many big corporate groups, leading to rise in bad loans of banks. NBFC’s that were fuelling consumption demand through credit growth are facing liquidity issues on the back of frozen credit markets.
Globally, escalating US-China trade war, geo political issues in various countries, sanctions on Iran by US and weakness in economic growth in Eurozone and China are all contributing to market uncertainty.
The avenues for investments are limited with both debt markets under a credit crisis cloud and equity markets seeing earnings downgrades. Real estate is hurt by lack of credit and commodity prices are down on a demand slowdown. The safest investments appear to be bank fixed deposits and government run small savings schemes.
In this tricky investment environment, what should investors do?
The safest option is bank fixed deposits and if there is money for longer term investments, government run small savings schemes. However, these are not options that provide long term growth in savings to beat inflation and also build a corpus.
SIPs in equities can be selectively looked at, as valuations are falling continuously. It is also a time to take stock of the expenses you are paying in third party products and lower the expenses through investments in low cost products such as ETFs.
Existing investments in equities, if in stocks with good balance sheets and long term growth potential should be held on and incremental investments can be made in the same stocks.
Stocks that have weak fundamentals and do not have the management bandwidth to ride out tough market conditions should be disposed off.
There is no hurry to invest in such market conditions and it is better to play safe, make small incremental investments, keep expenses in products low and have a peace of mind in investments.