Covid is haunting market again. What should investors do? | Economic Times

Sensex crashed 1,400 points in early trade and recovered later to close 871 points down on Monday because of a record single-day jump in Covid-19 cases in India. With new restrictions in place, the economic activity might be hit in many parts of India and the world. Sensex has been volatile in the recent past and experts believe that the volatility might continue in the near future as well. What should equity mutual fund investors expect?The NSE Nifty sank 1.5% to end at 14,637, after trading in a range of 14,849-14,459 during the day. BSE Midcap and Smallcap indices ended around 1% down on Monday. “Equity markets in the very short-term tend to move with sentiment. Sentiment in turn depends on news flow on a daily basis. At this point, Indian investors are nervous about Covid impacting economic activity and hence the correction. Some pause after a sharp rally in the market over the past 12 months is healthy,” says Chandraprakash Padiyar, Senior Fund Manager, Tata Mutual fund.Even though the covid-19 cases are on a rise and the situation remains tense, fund managers believe that the it is not as bad as last year. These fund managers believe that the impact on the economy and the market might not be as bad as 2020. “We are in a different environment than what it was one year back. From an economic point of view, Indian economy is in a much better state and corporate earnings too are likely to be better than the 2013 to 2020 phase. However, we are not health experts who may be able to predict how the second wave of Covid will pan out which is largely concentrated in certain states. Also equity valuations are no longer cheap like it was a year back,” says S Naren, ED and CIO, ICICI Prudential AMC.Mutual fund advisors and managers believe that equity investors should not look at the near-term performance and stay focused on their asset allocation. The fall on Monday was not restricted to a specific segment of the market. The small and mid cap segments were also impacted by the fall. Fund managers say that medium to long term market view depends on normalized business growth and the inherent value of businesses. “Every investor needs to adhere to his/her asset allocation depending on the age/income profile and the ability/willingness to take risk. I believe diversified equity funds should always be a large part of any investors portfolio and rest of the capital can be invested in other options available,” says Chandraprakash Padiyar. Apart from domestic issues, fund managers also believe that all eyes are on US interest rates right now. Rising interest rates in the US can be a matter of concern for the Indian equity markets. “The real risk to Indian equities will emerge when US turns hawkish and hikes rates or decides to roll back on quantitative easing. Any developments on these fronts hold the potential to trigger a significant market correction. So, there could be volatility ahead and to tackle market volatility, we recommend investing in dynamic asset allocation funds,” says S Naren.Padiyar believes that such volatility and corrections if continued for some more time can provide a good entry point for equity investors. “A volatile market provides opportunity to investors to add to equity investments during downsides and book part profits and rebalance asset allocation during large up moves. I would advise investors to use the current correction and deploy capital into markets gradually over the next few months via the SIP route,” says Chandraprakash Padiyar.