Investment advisers in the UAE give diagonally opposite advice on the current market meltdown, with one group advising ‘stay put’ while another is of the view that this is the best buying opportunity.
Indian investors lost over INR6.50trn ($87bn; £67bn; €77bn) as domestic equity market witnessed heavy selloffs amid rising uncertainty over the economic impact of the coronavirus outbreak.
BSE Sensex dropped 2,200 points, some 3.71%, and reached a low of 35,337 points, from a peak of more than 43,000 points two weeks ago.
Though the oil price drop will play out well for the Indian economy, local stocks came crashing down following a 31% drop in crude oil prices in global markets.
Technically, the major crash in crude oil prices of such a magnitude is positive for India due to its heavy reliance on imported crude.
It is estimated that India will have a savings of $7-8bn for every $5 a barrel fall in oil prices.
Brent oil prices fell by over $14 a barrel this week, potentially saving India $20bn in import expenditure.
The crash in oil price will hit commodity-driven emerging economies hard, which may trigger outflows from emerging market funds and India could be a likely victim.
However, analysts say 2020 will be a good year for domestic stocks, though the market has been volatile.
More sell orders in panic
Advisers report that NRI investors have been issuing sell orders right from last week when stocks started falling on reports of the spreading coronavirus cases, though reported cases were relatively fewer in India.
The concern was the economic impact rather than the spread of the epidemic.
“This crisis is a good time to invest in Indian market. [It] usually returns to sanity after such a big fall. Stock market valuations have been reasonable for some time, but expensive stocks have kept getting costlier. We are optimistic about the market outlook given the lower interest rate environment and the sharp drop in crude oil prices,” said Prashant Jain, chief investment officer at HDFC Mutual Fund, in a statement.
The fact is, most NRIs do not play the market on a daily basis or during wild fluctuations.
Most are engaged in the Indian market through mutual funds directly or indirectly through SIPs.
NRI investors tend to be guided by market sentiment. Many advisers are approached to exit the mutual funds before further erosion in NAVs.
Best buying opportunity
“I would say they should not panic. Instead, they should make use of this buying opportunity as this is time for cherry-picking. Indian economy has been resilient going by the historical bounce back in the past. The market had tanked almost 50% during the Sars epidemic a few years ago, but the market recouped in record time, to the extent of the Sensex crossing the magical 40,000-point mark,” said Biju Radhakrishnan, director, FRG Consultants and Chartered Accountants, Dubai.
For those who play the market directly, the advice is: “Time is ripe for bargain hunting. It is usual that the market returns to sanity after a fall. Therefore NRI investors should not lose heart, rather take informed investment decisions to make the best out of this situation,” Radhakrishnan said.
However, some analysts are predicting further falls as the market outlook does not look pretty.
They see a snowball effect in the market as the timing of the virus is more damaging for the market, and advise investors to shift focus from equities during a dire situation as equities this year seem to be the troubled spot. So, the advice is better to stay put, than risk buying right now.
