In recent times, we have seen the extreme panic in equity markets. Broader indices like Nifty50 & Sensex have corrected almost 11% from the recent high. Investors have become fearful due to the rapid spread of Coronavirus.
But, as a prudent investor, you should be happy that you can buy good business at a cheaper valuation.
Why?
- This is not the first time that a disease has spread across globe.
- Equity markets are forward looking rather than backward looking. Which means major damage could be already done and bottom could be near us.
- Investors who have invested during phase of extreme panic have been rewarded a lot.
The below table shows how the US equity market (represented by S&P 500) had reacted to past epidemic outbreaks.
Performance of Indian markets during last major disease outbreak.
Where to Invest?
During panic phase best investment are ETFs (Index funds) as it is generally difficult for a small investor to predict how a particular company will be affected due to spread of virus
Read: What are index funds?
Final Words
One cannot predict where nifty will land in the next 3 or 6 months but we can predict that if our economy survives major catastrophe like the Corona virus, then we will see money flowing back to equity markets.