What Should Be the Action Point for Equity Investors at This Time?

By Angel Broking | Published on 12th April 2020 | 287

What Should Be the Action Point for Equity Investors at This Time?

The coronavirus pandemic is turning out to be a trying phase for investors and traders in the stock market. Due to the wide-spread fear among both individuals and businesses, the financial markets throughout the world are witnessing a huge sell-off. The Indian financial markets, in particular, appear to be greatly affected, with both the benchmark indices SENSEX and NIFTY plunging by more than 20% since March 1, 2020.

While the sharp fall in the prices of stocks was started off by the spread of COVID-19, the extended lockdown solidified the bearish trend. If you’re panicking about the current fear-gripped financial environment, here’s an action point for investors during the coronavirus pandemic that can help you navigate these tough waters.

Accumulation of stocks :

The current fall of the stock market is fuelled not by fundamental factors, but by  extremely low investor sentiment. Even bluechip companies and large cap companies with exceptional performance track records have not been spared in the rout. This essentially signifies that the bearish sentiment prevailing in the stock market is temporary.

So, stock accumulation is a smart action point for equity investors in the coronavirus scenario. Investors can smartly utilize this stock price plunge to accumulate shares of fundamentally strong companies. By picking up quality stocks when they are beaten down, investors stand a lot to gain financially in the long run.

Averaging of investments :

Averaging investments is another useful action point for investors due to coronavirus. If you are already holding a particular stock and if the price of the stock has been on a downward spiral due to the COVID-19 pandemic, it might be a good idea to employ the technique of averaging.

Equity investors could use the buy on dips strategy to purchase more shares of the same stock at periodic intervals. When you buy more shares at lower prices, the average cost of investments ultimately goes down. Investors can then turn a profit by selling their entire holdings when the prices invariably rise in the future.

Hold your investments :

Being patient is the third action point for investors during the coronavirus pandemic. At the outset, it might seem less-than-ideal for investors to stay patient in the face of a financial and economic crisis. In this case however, this strategy may just prove to be effective.

If your portfolio of stocks is bleeding and if you’re in no position to make further investments, the best way forward is to hold on to your investments. While you might feel the urge to liquidate your holdings to cut down on your losses, refrain from doing so. Fundamentally strong companies with good financial performance are bound to bounce back up once the investor sentiment turns positive.

Starting an SIP :

A highly underrated action point for equity investors in the coronavirus crisis is starting a Systematic Investment Plan. During uncertain and negative times like these, SIP is the right way to go. Instead of trying to time the market and directing a lot of time and resources towards identifying the right time to buy a stock, you could simply start an SIP.

A Systematic Investment Plan not only requires very little time and effort from your part, but is also proven to deliver positive results in the long run. By investing in mutual funds or equity shares at regular intervals, you stand to benefit from lower cost of investment and higher profits. Additionally, SIPs are highly customizable and flexible with respect to your monthly investment amounts, the tenure, and the choice of funds or stocks.

Investing in defensive stocks :

The last and final action point for investors due to coronavirus is investment in defensive stocks. Stocks of companies manufacturing and providing essential goods and services are generally categorized as defensive stocks. The demand for these essential goods and services is always at a high, even during times of economic and financial turmoil.

This makes them immune to wild fluctuations in price due to economic changes and weak investor sentiments to a large extent. Since defensive stocks are generally considered to be stable and safe bets, investing in them is a great way to experience financial success even during times like these.

Conclusion :

Portfolio rejig is another major action point for investors during the coronavirus pandemic. Situations like the one the world is in right now are perfect opportunities for investors to take a long and hard look at their portfolio. By simply monitoring the price movements and the performance of the stocks in the portfolio, you can easily identify the ones with maximum profit potential. Now is the right time to trim your portfolio by liquidating non-performing stocks and replacing them with defensive stocks and stocks of fundamentally strong companies.