Should You Buy Stocks After An 18% Plunge From Peak Levels?

The Sensex has dropped almost 18 per cent from peak levels and many investors ask: should we buy into stocks now?

In 2008, during the sub-prime mortgage crisis, central banks across the globe acted in concert and helped to resurrect the global economy. This was largely done through quantitative easing, which in the years to come, proved pretty effective.

Coronavirus: The fear of the unknown

The coronavirus brings with it, a fear of the unknown. No individual has even an inkling, when it could away. Just imagine, an Italian region that has a population of nearly 16 million people, is quarantined. It's almost sure to lead to a sharp slowdown and disruptive business activity.

The question with the present crisis is that, it is a question of life and death, which has never erupted at such a large scale.

For sure there is likely to be an impact on trade and hence on the global economy. Already, high frequency data from China suggests a sharp slowdown. In such circumstances, it's likely that earnings for most global corporates would suffer and stock markets are slaves to earnings.

In India, the infections are not much. However, India is grappling with other issues, such as a crisis at Yes Bank. Investors are now beginning to worry over other private sector banks. This explains to huge sell-off in some banking stocks like RBL Bank and IndusInd Bank on Monday.

The one silver lining for India, is the sharp fall in crude prices, which comes at the most appropriate time.

Buying into stocks in a staggered manner

It's a crazy market out there and nobody knows when the rout could end. It's therefore best to buy in small amounts, in a more staggered manner. This is almost like a Systematic Investment Plan. At some stage, infections from the coronavirus are likely to abate and global markets are likely to recover. This make take a few quarters from now, but, the way markets have fallen, it would be a very big opportunity to make money swiftly.

However, we wish to emphasize once again, buy in a staggered manner and do not buy at one go.