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Is it a good time to buy stocks now?

Amid recessionary fears, Central banks globally continue to take more decisive actions to curb inflation

Is it a good time to buy stocks now?

Is it a good time to buy stocks now?

The share market is falling continuously amid rising Covid-19 cases. What is the global outlook, and should we buy shares on dips in this scenario? - C Mithun, Hyderabad

The US Treasury bonds, the global fixed income benchmark, lost 16 percent, setting them on course for the worst year on record. The Euro Zone Government bond market signalled a recession in the last quarter. German bonds lost 24 per cent in dollar terms, indicating that Germany, the region's largest economy, could be on the verge of a recession.

The Federal Reserve is projected to continue the rate hikes in 2023 to above five percent. The Federal Reserve is taking action for the first time since a steep economic downturn in 2007. Amid the recessionary fears, the Federal Reserve, RBI and other Central banks have switched to panic mode. The Central banks globally continue to take more decisive actions like controlling price growth, policy tightening and remaining hawkish to curb inflation.

The S&P 500, the benchmark index, has fallen by around 25 per cent. All the 11 major S&P 500 sectors are bleeding. Nasdaq 100 has dropped nearly 12 in the year to date. The Dow Jones Industrial Average index consisting of the top 30 blue-chip companies, is a barometer of the US economy. The Dow Jones Industrial Average lost 20 per cent hits and hit a 2-year low on recession worries. European, Asian, and other Global markets are in shambles.

The cryptocurrency market is in a very stressful moment. The crypto market lost more than $2 trillion in 2022. Popular digital coins have fallen far below their 2021 highs. Ether, Bitcoin and Dogecoin lost 66 per cent, 62 per cent and 56 per cent, respectively. Cardano and Terra coins lost 80 per cent and 100 per cent of value in 2022. As a result, several crypto mining companies and exchanges across the globe were bankrupted.

On the domestic front, there has been a bloodbath on Dalal Street, as new cases of Covid-19 in China and the U.S. renewed the fear of the pandemic once again. Russia-Ukraine War and recessionary fears have already dented sentiments on global stock markets. This fresh fear of Covid-19 triggered profit booking leading to a free fall on all major indices. All indices ended in red, and equities witnessed free fall. Sensex headed southwards below 60,000. Sensex closed at 59,845 last week, which began at 63,125 on 1 December 2022. The nifty 50 index that hit a lifetime high of 18,886 on 1st December 2022 is now struggling at 17800. The nifty midcap 100 and Nifty smallcap 100 also fell accordingly. The surge in Covid-19 new variant cases around the globe has spooked investors, and as a result, selling was seen across the sectors.

After setting a record lifetime high on 1 December 2022, Indian stock market indices are on a free fall. Bears have taken complete control of the Indian stock market. The equity market is under sell-off heat as FIIs are on a selling spree and continue withdrawing from Indian equities. The bloodbath may continue for some more time because of recessionary fears, the Covid-19 pandemic and high inflation. The Ukraine war and geopolitical worries are far from over. However, India may not repeat the 2020 blunders concerning Covid-19. The Indian government has already sprung into action and is closely monitoring the situation.

It's been a brutal year for the world's economy. The collapse of global markets has shattered investors' confidence, and the ripple effects of the equity, fixed income and crypto collapse continue to spread throughout the global economy. The year 2023 may surprise the world with another crisis like the 2008 great recession, The 2010 European debt crisis, and the 2020 Covid-19 crisis. Covid-19 case numbers are exploding in China, and the new variant of Covid-19 may strongly impact the global markets and economy.

Markets may continue to plunge given the worry over the potential risk from surging Covid-19 and global recessionary fears. Firstly, stay invested in the equities and do not sell unless you cannot afford any further losses. At this juncture, investing in equities and cryptocurrency is highly risky. Keep a tab on your portfolio and leveraged positions. Investors sitting on a pile of cash and having a longtime horizon may accumulate good quality stocks with lucrative valuation and Price–earnings ratio and fundamentally strong. These stocks may bring in significant gains.

Secondly, understand the companies you want to invest in. Don't buy stocks simply because it is coming for a throw-away price. This is the best time for people wanting to do SIPs, albeit in top-rated mutual funds. Stock prices and indices are likely to fall further if we do not arrest the new variant of Covid-19.

Every speculative investment is considered a highly volatile asset subject to unpredictable price fluctuations and crashes. One should not invest more into equity, crypto, real estate and other speculative investments than one is willing to lose potentially.

(The author is a Sebi-licensed Research Analyst. The alumnus of the Indian Institute of Foreign Trade (IIFT), he had held leadership roles at National Geographic, Reliance Radio Television Luxembourg, STAR TV, etc)

Sunil Dhavala
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