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War And Equity Investments

Uncertain times are upon us. There is a shadow of war post killing of tourists in Pahalgam. So far, equity markets have not shown any signs of cracking up despite of high expectations of armed conflict with our wayward neighbour.

Is it the calm before the storm as far as equity markets are concerned?

It is anybody’s guess that if a protracted war does happen, economy will take a hit in near term, which in turn will impact our daily lives, including equity markets. When and how this will happen is again anybody’s guess. Should you take a relook at your equity investments in such a scenario? Nothing wrong in being a little conservative in such times. Here’s what I think can be considered:   

-          Scenario I: You have designated INR 100 for equity investments and are fully invested. While you do have money in non equity investments, in case of equity market downturn, YOU WILL NOT PULL MONEY OUT OF SUCH INVESTMENTS AND DEPLOY INTO EQUITIES. If you are in such a situation, no harm in taking out some money, say 25% from equity investments and keep it in non equity assets for at least 3 months. There will be cost of pulling money out of equities including taxation. One can consider such cost as insurance

 

-          Scenario II: While you have good amount of capital deployed into equities, you have spare capital waiting on the sides to rebalance into equities should a severe downturn does take place. This essentially means you are already prepared and no action is required

 

Some may call actions mentioned in Scenario I as market timing. No denying that it is. Act upon it at your own risk!!! I don’t mind market timing or any other action which increases my staying power. But then, each to their own.

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