2nd Wave of COVID-19: How Should You Invest?

The second wave of COVID-19 is here. It has injected volatility into the stock markets and has naturally set panic among investors. Individuals witnessed massive losses and profits over the last year due to the onset of the COVID-19 pandemic in March 2020 and the falling number of new cases towards the end of the year, respectively. 

The economic boosters and improving global economy spurred the stock markets over the last six months. Sensex and Nifty recorded their fresh peaks, and investors enjoyed capital appreciation during this period. However, things have taken a downward turn in the last few weeks. It is attributable to the second wave of COVID-19 infections. 

India is now recording over 1,50,000 fresh COVID-19 cases daily. It has called for restrictions such as night curfew, partial lockdown and suspension of ‘work from office’ in major business centres such as Mumbai and Bengaluru. These developments have affected the market sentiment and might cause the bears to have the upper hand over the markets’ bulls. 

The S&P BSE Sensex has fallen over 3.5% over the last thirty days. Amid the market volatility, how should you modify your portfolio? Well, here’s the answer:

i) Increase your exposure to blue-chip stocks

Investing in blue-chip stocks is a good option right now as these stocks are known to show stable performance over time. As blue-chip companies are financially well-established, they are not impacted much by the market movements. If you don’t have any blue-chip stocks in your portfolio, it is high time to have some. If you have invested in blue-chip stocks, you may consider increasing your exposure towards them. If you find it challenging to pick blue-chip stocks on your own, you may consider investing in a blue-chip fund. These mutual funds invest in top-performing blue-chip stocks and are managed by a finance professional called the fund manager. 

ii) Gain exposure to pharma stocks 

As healthcare companies play a major role during a health crisis, they get all the attention. Particularly, with the pharma companies garnering more funds for the research and development of the COVID-19 vaccine, their share price has soared in the recent past. In fact, the NSE Pharma index has expanded by nearly 30% over the last twelve months. If you don’t have pharma stocks in your portfolio, it would be a good idea to add them. If you find it difficult to pick pharma stocks on your own, you may consider investing in pharma funds. These funds invest in top-performing pharma stocks. 

iii) Include fixed-income investments

Times like these call for stability in your investment. If you don’t have any fixed-income investments in your portfolio, it would be best to have some now. You may consider bank deposits and government savings schemes. You may also invest in high-rated debt funds such as liquid and overnight funds. Investing in fixed-income securities will help you stabilise your portfolio to an extent as they provide assured returns regardless of the market developments. 

iv) Adopt value investing strategies

Value investing refers to investing in stocks that are undervalued. Their share prices would have fallen due to the knee-jerk reaction to the market fall and not correspond to their fundamentals. If you cannot pick value stocks on your own, you may invest in value funds.  

v) Invest via an SIP

Investing in mutual funds via an SIP (systematic investment plan) is the best way to invest in mutual funds. By investing through an SIP, you stagger your investment over time. When the markets are down, you will buy more units while purchasing fewer units when they are thriving. Over time, your cost of purchase averages out and will be on the lower side. This is referred to as the rupee cost averaging. This benefit will not be available if you decide to take the lump sum route of investment. 

Conclusion

You must note that market volatility is the only constant that comes with equity-linked investments. A market fall should not deter you. It is not advisable to redeem your investments during a market fall as doing so will result in exiting in the red. Instead, you should invest more with a long-term investment horizon. 

For any clarifications/feedback on the topic, please contact the writer at  vineeth.nc@cleartax.in