It is essential to understand that the stock market and the economy are not the same. Even in normal times, you should not forget this fact. The everyday movement in the stock market helps in reflecting the accumulated opinion of the traders. It gives a hint on what will happen in the following day, month, or week. During the uncertain phases, this period tends to shrink down to just hours or the next morning. Traders at present are trying to stay afloat and survive the situation until the next session.
You cannot come out with a conclusion about the position of the economy when Nifty or Sensex falls by 30 or 40%. These serve as just numbers and cannot determine where the economy will be after two or three years. They just keep guessing what will happen in the next morning. The manic depressive and wild swings displayed by the stock markets are proving the point that all these are mere guesses and hold no value at all.
Savers who have invested in equity-backed savings have started panicking. They are fearing that the huge downfall in the markets is reflecting a bleak economic future. But this is not the truth. Although the situation is dire as compared to other times, we cannot completely and accurately predict the future.
The reason is loud and clear. Whatever is happening is not an economic or financial event. It is absolutely an external cause. It is more like a natural disaster and is influencing a large part of the world. Hence it is not at all possible to deal or cope up with the crisis in financial terms. Do you remember the global financial crisis of 207-08? The governments across the globe held onto the idea of pouring money into their respective economies. People were spending on businesses. Lots of unwanted consequences surfaced up, but the "helicopter money" approach helped in keeping things moving.
Many people are trying to the same now. But this is extremely puzzling. COVID-19 is more like a natural disaster, and to cope up with the situation, it is necessary to deal with its medical aspect. After this, the focus should be on providing money and food to those who belong to the lower strata of society. Since the disaster is not economy- first, hence the solution too should not be economy first.
At present, we may feel that a lot of things will alter in the coming time. Businesses and industries may move towards modifications and alterations. The physical things will tend to disappear because of inertia. This is quite obvious. But this also a kind of motherhood statement. It will take a long time in reality. You cannot hope for it right now. Being an investor or a saver, looking for such quick changes will be a mistake.
You may feel that this is getting quite banal and boring. But you must realize that this is the time to adhere to the basics. The concept of" stick to basics" is apt for extreme situations. The extreme situation can be downside or upside as well. You cannot get carried away by the herculean vents and situations. You must choose quality investments, get conservative, and have an asset allocation and stick to it. All this while the debt-equity balance will change and ensure that long term money will stay inequities. Keep in mind that these formulae work in all extreme situations. No matter how grim the situation may appear right now, these formulae will keep on working despite the panic and gravity of the situation.
Equity investing involves uncertainty and decision-making in a risky situation. We have no idea about what will happen in the future. But it does not mean that we are clueless about what to do. In the beginning, you may find it strange. But in reality, this is true for all types of equity investing. The situation can be normal or perilous, good or bad. The scenario at present is scary. But if we lose sight of our present and future, it will be highly risky.