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Markets are down 8% since their highest point this year. As an equity investor, what should I do?

Markets reflect reality and its perception, among other things. The perception today is that the entire world may be facing a serious threat in the form of the Coronavirus. No one can deny the seriousness of the situation as it stands with the virus spreading to multiple countries and disrupting travel and communication.

Short answer:

Markets may be down by a significant margin but the case for the businesses (some of the best this country has created) that mutual funds have invested in remains. Things may change for these businesses, but not necessarily for the worse. The answer still is to have faith, stay invested, and continue your SIPs.

Long answer:

Why is this happening?

Markets reflect reality and its perception, among other things. The perception today is that the entire world may be facing a serious threat in the form of the Coronavirus. No one can deny the seriousness of the situation as it stands with the virus spreading to multiple countries and disrupting travel and communication. 

The impact on businesses, which are more interconnected across the world than they ever have been, is nothing less than immense. Events like these always put the global economy under stress which is reflected the quickest in global stock markets as institutional investors can sell more than they buy and thus leading to massive intra-day falls as has been seen during the last week of February 2020. 

Has something similar happened before?

The biggest intraday fall in recent times that the BSE saw was in 2008 during the global financial crisis. It fell by over 2000 points back then, hitting a low of 15332. It took a long time for markets to recover but recover they did. 

What should I do?

For common investors like you and us, the fall is not cold math. It is an uncomfortable feeling of anxiety as our hard-earned and hard-saved money is at stake. Investing in equity though is a long term proposition for exactly this reason. 

We don’t know how the Coronavirus crisis will unfold. This is not the first time the world has seen a crisis and there are always unforeseen outcomes in such cases. History though, tells us that businesses and markets have come through changed but stronger and better. The markets may be down and might go further down but this doesn’t mean the businesses that mutual funds have invested in are shutting down.

For investors, this also means continuing with their SIPs, which anyway help minimise the impact of such events on your future investments which are spaced out over months, in good mutual funds. Markets, like life, have ups and downs which can seem huge at times. That doesn’t mean that we stop living, or investing. 

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