Number of the week: Rs 11.4 trillion

Business Standard
19th March

Rs 11.4 trillion: The stock market crash on March 12 wiped out Rs 11.4 trillion worth of investor wealth. The main trigger was the World Health Organization declaring Covid-19 a pandemic.

  • Extreme risk aversion has set in. With the number of cases rising rapidly in the US and Europe, foreign institutional investors (FIIs) are withdrawing money from emerging markets, including India.
  • The moratorium on YES Bank has also raised questions about the robustness of the Indian financial sector.
  • In such times, investors should avoid selling in panic. If they hold quality stocks, those will regain lost ground once the sentiment improves.
  • Those with stocks of companies that are over-leveraged or have poor governance standards are at a risk. They may as well dump these stocks while there is still some value left in them, because such stocks may not revive even when the rest of the market does.
  • Mutual fund investors should continue with their systematic investment plans (SIPs) despite the volatility. In fact, such volatility serves the interests of long-term investors by allowing them to purchase units at low prices.
  • After the latest correction in large-cap stocks (mid- and small-caps had already collected a lot since the start of 2018), investors who have surpluses may look to deploy them in tranches.
  • Investors should also diversify their holdings. Gold, which serves as a safe haven, should be kept in the portfolio to the extent of 10-15 per cent as it provides stability in such turbulent times.

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A few links for further reading

Invest and emigrate

The great Indian dream of settling abroad is achievable if one has a few crores to invest. Rich nations offer a variety of investment options in a quid pro quo arrangement: immigrants get a better quality of life and revenue from them helps these countries’ finances. Wealthy Indians, troubled by polluted cities and the red tape holding up entrepreneurship, may want a quick ticket out of the country. Sanjay Kumar Singh lists a range of options: from a Canadian province’s investor programme to America’s US EB-5 plan.

Small savings schemes

Investors in small savings schemes breathed a sigh of relief when the government announced on October 1 that interest rates on these instruments would not be revised for the fourth quarter of the calendar year. With the economy witnessing a slowdown, and the stock markets also turning volatile, many investors are looking for alternative avenues to park their savings. Small savings schemes, with their sovereign guarantee, have emerged as a viable alternative.

Hard path to growth

The signals for the economy are not positive: overall demand is yet to pick up; the share of total exports in India’s GDP is declining, and industrial output pattern remains worrying.

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