Friday's market crash is more of a panic reaction, which normally happens in situations where we don't know where any crisis / issue is headed. So, it is very much possible that it can continue for a week, ten days or can go on for the next three months or more. Since no one is sure where we are headed, markets have witnessed this kind of panic selling today.
As of now, Indian market seems quite insulated from the health scare, as there has not been any serious cases of coronavirus here. That said, in case the virus does hit India, it will be a huge setback. The virus has already spread to 44 countries.
Amid all this, India has a huge geographical advantage. One, basically, because we didn't have coronavirus issues at our end. Secondly, most investors globally would surely look at geographical diversification, especially away from China and that what is going to help us going ahead. The third benefit is the economy will not be impacted much due to this. While there can be issues related to companies exposed to China / outside world, the impact will not be as severe as being seen in other geographies. In other words, we will see a collateral damage of the global slowdown, won't have a direct impact.
Investment strategy
Times of panic are meant for strong-hearted investors to pump in funds to buy stocks. Although the Sensex tanked over 1,000 points on Friday, we still don't know whether this is the bottom. It can still go down further, and that's a billion dollar question. That said, if one is sitting on cash and take a long-term view on India, this is time to start allocating to equities. It is possible that after a few months, investors may wonder why coronavirus became such a bigger issue and that they missed a good market correction to buy. And this has happened on earlier occasions as well – be it geopolitical issue or a health scare like SARS.
So, where should you invest then? India-centric sectors are expected to do well once this panic settles. The broad theme is infrastructure, within which, ancillaries like cement, paint and everything around infra story can be bought. That apart, the economy should pick up going ahead. If there is an improved harvest, the rural-centric themes should also play out well. Hence, fast moving consumer names (FMCG) names.
That said, it doesn't make sense buying mid-and small-caps right now though I am optimistic on these two segments on an overall basis. In today's scenario when you have best of the large-caps cracking, so it's surely a time to buy large-caps. And when you see the recovery coming in, or at least you see the market bottoming out, that is the time to again start looking at the mid-and small-cap segments. Once the dust settles, we should see mid-and small-cap segments do better. That said, now is the time to focus only on the better quality large-cap stocks.
Ambareesh Baliga is an independent market analyst. Views expressed are his own.
As told to Swati Verma