15/04/2024
The global stock markets have crashed in a big way in the last two months. The pain is too fast and too much in such a short span of time. The markets are discounting a prolonged phase of shutdowns of economic activity. Not in all cases, but in many cases stocks are quoting at valuations that were there before 14-15 years. Crude Oil prices are near to about 18 years low. Metal prices are crashing. Equity investors have lost lot of value in the current carnage. Those who are not leveraged and follow strict asset allocation system may not be hurt that badly.
In many stocks, the valuations are at about 14-15 year low. Dividend yields in many stocks are as high as 6-9%. On an average, the dividend yields are about 7-7.5% in many quality stocks. These yields are higher than the Fixed Deposit interest rates. Now let us assume two possibilities. One is that the World is going to end by the devastating effect of Coronavirus. If that be the case, your investments in Bank FDs, Bonds, Real Estate, Equities will all get hurt in a big way and nothing will get spared. Another possibility is that the world finds a remedy for the Coronavirus in the next few months and the situation gets back to normal. If that be the case, equities are the best investment in the current scenario that offers the best of both worlds. The safe returns of debt in the form of Good dividend yields and the growth of an equity product. Many companies are available at attractive dividend yields, at stock prices below their book value and at stock price valuations much below their normal growth potential. They are also available at much lower market cap than the cost of replacement of assets. Such combinations are rare to come by. Investors must invest in quality bluechip stocks at the current levels even taking the risks of some more downside that may happen in the current volatility. After a five years or so, if the stock is quoting at Rs 300, it won’t matter whether you bought it at Rs 60 or Rs 90.
This is a once in a two decade opportunity to invest in equities.