The recent Corona-induced market crack has led to widespread investor concern on longer term safety of capital. The research team of HDFC Securities has compiled the following list of FAQs (frequently asked questions) that most investors are asking. Trust you will find this a meaningful and financially useful compilation!

#StayHome #TakeChargeDigitally

1. Is it a good time to buy?
   
   
2. My mutual funds are also hurting. What to do here?
   
   
3. Should I discontinue my SIP?
   
   
4. How do I protect my portfolio from further damage using F&O? What are the benefits and pitfalls of doing this?
   
   
5. How long have bear markets lasted in the history of Indian Stock Markets?
   
   
6. I have bought gold at lower levels and am currently in profit, should I book profits?
   
   
7. I’m a first time investor - what should I do ?
   
   
8. Which sectors will benefit out of lockdown?
   
   
9. Will currency depreciate further?
   
   
10. Is market in bear phase already?
    
    
11. Should I book loss?
    
    
12. Should I sell if I’m still in profits?
    
    
13. Is it a good idea to start some StockSIPs?
    
    
14. US markets have also cracked. Should I start investing there?

Q1. Is it a good time to buy?

It depends on your asset allocation plan. In case you are underinvested in equities, start SIP in MF schemes (see: Mutual Fund SIP Reckoner) or in ETF basket or in direct stocks.

Thumb rule of asset allocation for risk lovers : 100 – (your age) = % of your net worth you should put into equity (stocks, MFs and FnO exposures combined). If you are very conservative, use 70 instead of 100. A thirty year old risk lover would put 100 - 30 = 70% of net worth into equities, but a more conservative person would allocate just 70 - 30 = 40% of net worth here. The rest should go to fixed income, gold and others.

Q2. My mutual funds are also hurting. What to do here?

Markets around the globe have crashed around 40% from their recent highs in span of two months. As a result, we are seeing huge erosion in the wealth of equity investors, irrespective of whether they’ve chosen to invest through mutual funds or direct equity.

In the past 34 years (since 1986) there have been six major bear markets (a fall of around 40% or more) and every time markets have recovered in next 2-3 years. At this juncture, one is not sure if the correction is over yet. However, if you do not need money in the next few years, you should hold onto your Investments. For now and in future remember to conduct an asset allocation review (will also help in taking profits during bull periods) and individual investment review (to weed out the consistent non-performers and add quality performers). This should be done at regular intervals of say 4-8 months.

Q3. Should I discontinue my SIP?

Majority of the Indians are participating in the equity market through SIP (Systematic Investment Plan) mode investing collectively more than Rs 8,000 crores every month. Due to the paper losses that they see in their portfolios currently, many investors may be thinking of stopping the SIPs. That would be a big mistake – don’t do that.

These corrections will only help you to average your costs. Hence, in order to make the best of the situation, continue with your SIPs and if possible increase your SIP amount. Here again you could switch after a review (stop SIP in underperforming schemes and start in other quality performing schemes).

Q4. How do I protect my portfolio from further damage using F&O? What are the benefits and pitfalls of doing this?

Derivatives are a very important tool of risk management. The most important use of derivatives is in transferring market risk, called Hedging, which is a protection against losses resulting from systemic risks (market wide risks). Most simple way to hedge your portfolio is buy Nifty Put Options.

However Hedging is like buying an Insurance which involves costs. If Market rises you will lose the premium paid of buying Puts. However your value of the portfolio rises to the same extent.

Ideally Hedging should be used sparingly and when the markets have been rising for a long time without any significant corrections.

Q5. How long have bear markets lasted in the history of Indian Stock Markets?

Major Tops in Indian Markets were seen in Year 1992, 2000 and 2008. In 1992 Year case, It took approximately 2.5 years for Sensex to recover and reach the previous top levels.  During 2000-2001, Sensex took almost 4 years while in 2008 it took 6 years to reach the previous peak.

Q6. I have bought gold at lower levels and am currently in profit, should I book profits?

Gold is a promising asset at the time of global turmoil. Gold has negative correlation with equities and so is preferred as safe haven buying when equity markets decline. It is advisable to stay invested in gold during current market scenario as a hedge against uncertainties. You may think of part selling your Gold when the equity markets seem to be in the process of long term bottom formation.

Q7. I’m a first time investor - what should I do ?

These are good times for a first time investor to begin investing. Apart from applying in good quality IPOs, you could start SIP investing in mutual fund schemes. Later once you have gained some expertise on the ways stock markets work and have studied some good quality stocks you could look at direct equity investing (either DIYSIP or lumpsum).

Q8. Which sectors will benefit out of lockdown?

Pharmaceuticals & healthcare, telecom, select financial services and some internet based businesses are operational in the lockdown phase. These businesses will be able to weather the storm relatively better than others.  However once the lockdown ends you may have to shift to other sectors that may look more attractive and may benefit out of resumption of activities.

Q9. Will currency depreciate further?

FPI outflows in equity and debt markets and fall in exports due to lockdown and logistical issues could bring pressure on Rupee although fall in imports (and fall in crude oil prices) could cushion that impact to an extent.  If virus outbreak is contained by April, rupee could find support near 78. Movement in US dollar vs the other 6 major currencies (Dollar index) will also determine the trend in Rupee.

Q10. Is market in bear phase already?

When index corrects 20% from the top, it enters a bear phase. Indian markets have entered bear phase when Nifty breached 9944 levels.

Q11. Should I book loss?

If you bought something on hearsay without being confident about its future prospects, better to review the holding, its fundamentals, its recent developments, its price trend off-late compared to the indices and if the stock is weak on these parameters, sell it and invest that money into an idea you believe (after study and analysis) has better long term prospects. 

Q12. Should I sell if I’m still in profits?

It depends on what you have bought and what is your time horizon. If you bought something for the short term and you are in profits, sell it and move on.

If you bought it after looking at its fundamental prospects and with a longer term horizon and the stock has so far relatively outperformed vis-à-vis its peers and the market, keep it and add to it on every declines.

Q13. Is it a good idea to start some StockSIPs?

If you are an evolved investor who has tracked stocks for 1-2 cycles and have the time and skill to track stocks, then you could manage your own funds and do a DIYSIP (StockSIP) facility offered by HDFC Securities. We at HDFC Securities also provide a list of stocks that could be considered for DIYSIP (stocks like ICICI Bank, Reliance, Infosys). By doing this you could take your own decision on choosing stocks and their entry/exit times. You can also save the expenses charges by the AMCs when you invest through Mutual funds. 

You could also consider “Invest in Ideas” product offered by HDFC Securities consisting of easy-to-invest baskets based on different themes (including to-be-launched shortly “Defensive stocks” & “Fallen Angels”) (Read more). 

Q14. US markets have also cracked. Should I start investing there?

Affluent investors should diversify their asset classes across instruments and geographies. US is world’s leading economy and home to innovation and wealth creation. Though the direction of US equity market and Indian equity markets are similar, the extent of rise in US markets has been far higher than that in India. Also investing in US stocks gives you a hedge against Rupee depreciation. HDFC Securities offers the convenience to invest in US equities (Read more).