Does the falling equity market make sense to invest in?

May 9, 2020

The Covid-19 pandemic has sparkled some severe repercussions for the global economic landscape. While the global financial markets have undergone a major corrective phase, at the time of writing this, the Indian indices have fallen by more than 35% from its recent peak in just a matter of a few days. Since such a drastic fall has made the prices of stocks look attractive, it’s easy for an investor to get tempted into making fresh equity investments.

However, such haste in making investment decisions can be risky for two reasons:

First, as the technical indicators suggest, a drop of such magnitude has forced the Indian markets to enter into a bearish phase. Further, analysing data from the past 20 years suggest that whenever the markets have witnessed a double-digit drop from its peak in a month or less, a prolonged weakness has followed, contrary to the market-wide expectations of a temporary bounce-back or turnaround in the market outlook. 

While the current 35% drop in the benchmark indices is a part of the global sell-off owing to the concerns of the global economic slowdown, the pandemic environment created by Covid-19 is still evolving and even the governments of the most developed countries are struggling to contain the situation. Such long-drawn market weakness could cause investments to underperform and eventually diminish investors’ returns. 

The risk of global economic slowdown has and will continue to force the central banks worldwide to announce stimulus packages and lift global growth, thereby necessitating the diversification of the financial structure. With a comparatively young average age of 28 years, the youth of India is poised to become the driver of economic growth substantially.

In our view, times like these would require the society at large to borrow sums of money to fulfill their needs and with a comparatively young average age, Indians could form a substantial percentage in driving the informal borrowing sector. With a futuristic vision and great promise, P2P lending platforms are perceived to offer simplified lending solutions with quick disbursal processes. Amidst the NBFC and bad loans crisis, P2P lending is poised to become one of the most significant sources of alternative funding, thus generating wealth-creation opportunities for our investors despite a grim economic outlook.

Keeping in view the factors mentioned above, we encourage our investors to be wise about their investment choices and continue to leverage P2P lending platforms that hold the potential to outperform their peer asset classes.

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