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Should You Buy Into Stocks Now At Distressed Valuations?


A bearish trend may prevail in the next few weeks, as the world continues to fight coronavirus infections. The news around the world from infections caused due to the Covid 19 is also very bleak with cases in the US doubling in three days to touch 1,00,000. China continues to see imported cases rise, while deaths in Italy continue unabated.

The world is in a recession

While analysts in the last few weeks were predicting a recession, International Monetary Fund chief Kristalina Georgieva on Friday said that the world economy is already in a recession thanks to COVID-19.

Should You Buy Into Stocks Now At Distressed Valuations?

"We should not go with small measures now when we know that it is a gigantic crisis," she said. "We've never seen the world economy standing still."

Should you buy into stocks now?

Nobody in this world can try and predict, when is the best time to buy stocks and whether you should buy. At best, one can do a fundamental analysis and suggest that valuations are cheap. In fact, what we can say now is that the Nifty trailing p/e is around 14 times one year forward earnings, which is much cheaper than its long-term average. However, that does not mean that it is a good time and the Nifty would not become cheaper.

Nifty lifetime high

Current closing

Percent loss
12,430 points 8660


It can even become 10 per cent or 20 per cent cheaper. The point we are making here is if you are buying now, you also need to be prepared for a downside risk, given that the coronavirus is a "big unknown". Nobody knows when the infections would abate. During the crisis of 2008, one could arrive at a ballpark figure of the extent of damage, but, with the covid 29 infections, nobody knows how long the global lockdown will last.

Of course, investors at these levels are getting stocks, which are at least 30 to 40 per cent cheaper than they were a few months ago.


Buy into quality stocks

Many investors would be tempted to buy into stocks at lower levels. It is advisable to buy into good quality stocks, which are now available significantly cheaper. Ideally, some of the largecap stocks too have come crashing down and are available at very cheap valuations.

In fact, most of them hit 52-week lows this week and hence are available at pretty decent valuations. If you are a long term investor, it would make sense to buy, because as and when infections abate, you will not get stocks at these valuations.

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