Is the Coronavirus Carnage Over on Dalal Street?; Is it Right Time to Start Buying & Stop Panicking in Falling Market?

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Most technical analysts or Market experts would really try to identify a bear market as in cases where the benchmark indices plunge more than 25% from recent highs.

Bull and bear markets are very usual in nature in financial markets. But what is unusual this situation around is the velocity at which markets transformed its gears. Until January 2020 stock markets were in a euphoric mood. And as in the last week of Fab and March 2020 reality at the ground level has changed dramatically. The majority of stock markets across the globe have crashed badly and entered the bear market territory now.

Coronavirus: Threats and Opportunities of a Global Pandemic

Individuals are responding in a range of approaches to this risk has quickly spread over the world – from detaching ourselves, to saying thanks to god for not being excessively old; from being happy for once about the warmth and mugginess we live in, to singing upbeat birthday while we wash our hands…

Investors and Traders have their own odd responses – purchasing stocks… the whole shebang, selling stocks without an idea, urgently watching the market as it crashes, and crashes…and crashes once more…

Well – I don’t have a lot of guidance for the individuals who are coming up short on face covers and sanitizers…

Be that as it may, for speculators – truly, I positively have a ton to the state to you.

Coronavirus has been spreading since the beginning of 2020 and has scared worldwide markets as of late.

It might along these lines be too soon to state that the market is going overboard to the emergency or that the revision is overcompensated. This is what the effect of the infection resembles all around…

So, let me start with a motivating message which I use every time but crucial advice: Don’t Panic and Stay Calm!

Don’t panic and Buy Buy Buy according to your appetite. Don’t panic and sell.

However, we always advise you to accommodate your investing decisions and all investments strategically.

The greatest advantage and benefits of being a long term investor are that you don’t have to roll out enormous changes or modifications to your investment portfolio each time there is a transitory difficulty.

Be it a pandemic, or crash in a specific resource class, or IL&FS like a sector-related financial emergency, some straightforward guidelines can assist you with sidelining the market alarm easily.

Here are some critical strides to take for your portfolio from three alternate points of view – the long term horizon (more than 3 years), the Short term Horizon (1 to 2 years) and the trading viewpoint.

This is most likely the first run through since 2008 that worldwide markets are seeing unimaginable correction or crash in a short span of time.

Fear has now taken a deep position in the minds of all traders and investors over the world. Even Indian financial experts are not spared.

If you had noticed in the past that at the highest peak of the global financial crisis in 2008 this fear index hit a high of 85. Our financial markets afterward have settled down and traded on a relatively ‘peaceful note’ since then.

There were a few big surprise spikes in between during European countries Bailout and Brexit times. The most important ones in Indian terms were the spike during Lok sabha elections in May 2014 and April 2019. The level of uncertainty was very high ahead of Indian general elections. But once the verdict was out markets and clear mandate was given by the Indian Citizens market became very calm.

This time around we have crossed the previous peak and hit a high of 59.50 last week. We have not seen this level since July 2009. The fear index is suggesting that the real fear among traders and investors is at an 11-year high.

Once fear across the global markets grips market participants most of them make investment decisions based on emotions. When you make investment decisions based on emotions you are most likely to make the highest number of mistakes.

It is often said by “Oracle of Omaha” Mr. Warren Buffett says to be greedy when everyone in the world is fearful. Right now almost everyone is fearful which means you should act greedy and look for excellent buying and investing opportunities for the long term.

The real feeling of fear won’t last and will be over in a couple of days. Market participants will soon realize that they were assuming and taking decisions based on the fear factor. They will start buying cheap bargain stocks as soon as they witness this and the opportunity will disappear in a jiffy.

The Relative Strength Index is at record-breaking levels in history which means limited chances of fear holding on to the nerves of investors. Anxiety and Depression in Financial markets will prevail and people will start hunting value investing stocks again soon.

So, keep your eyes wide open on this line to know when you should start slowly buying. By the way, this line is nothing but India Volatility Index also known as India VIX or Fear index.

In the recent meltdown in almost all asset classes (bonds are an exception), one thing was apparent in my statistical data model: Naked fear.

I arrived at this conclusion by borrowing from Behavioural Finance which believes greed and fear are irrational emotions and are often seen in excess.

The statistical Beta (i.e. volatility) has jumped manifold immediately after budget day. That tells me there is overwhelming fear in the markets.

Splitting the fear vertically, one part is triggered by sell-offs in equity and commodity markets, the Coronavirus, and geopolitical stress. We have no control over these issues, nor can we predict them.

The other part is triggered by local considerations. Corporate profitability, tax collections, selling by domestic and overseas institutions, and margin calls from exchanges.

All these factors are quantifiable. Hard data is available in the public domain for each of these.

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