In a conversation with Vishav, Harsh Jain, Co-founder and COO of Groww, shares his views about the equity markets in the backdrop of the second wave of Covid-19 pandemic. He talks about the lessons investors learned last year. Excerpts from the interview:

The situation looks grimmer since the second Covid wave broke out but the reaction in the stock market is entirely different from the last year. What could be the reason for this?

Stock markets run on investor perception. Last year, most investors panicked since such a pandemic was unprecedented and markets were uncertain about how the government would control the spread of the disease. However, as the year progressed and the number of new cases dropped, the markets recovered and even managed to reach all-time highs. This resilience was based on investor expectation of the economy recovering after the lockdown-related slump, which was also reflected in the quarterly results of many companies.

Many investors seem to have learnt the lesson from last year and that’s why we are not witnessing the selloff to the extent that we saw earlier. However, these are still early days. It remains to be seen how many states are forced to impose lockdowns and that may change the outlook of investors in the coming months.

How do you expect the stock market to behave over the next few quarters in the backdrop of the second wave as well as the vaccination drive?

I think stock markets are inherently volatile. With the second wave numbers being high and vaccines being administered, the stock markets may display volatility over the next few quarters too. The extent of volatility, however, will depend on how effective the vaccines are in controlling the spread of the disease. Most investors will watch the developments in the Covid space closely and make buy-sell decisions based on this.

Talking of investments, what trend do you think will drive returns? Where can investors spot opportunities?

Market crashes are not something new. Regardless of the reasons behind a slump, fundamentally strong companies have always managed to generate good returns in the long run. Rather than going by sectoral trends, it’s prudent to invest within your circle of competence. Begin by listing down the number of industries or market segments that you understand thoroughly. You should understand the economics of the industry and the business. You can always gain knowledge about different industries and expand this circle. This approach can be highly instrumental in reducing mistakes made while choosing investment avenues.

At this point, should retail investors look at individual stocks or diversified funds? How about passive funds?

Choosing between stocks and mutual funds should depend upon the investor’s understanding of the markets. People who are conversant with stock markets can choose stocks provided they stick to the basics and keep risks within their tolerance levels. The rest can opt for diversified mutual funds after ensuring that the fund manager has a track record of generating stable returns in volatile markets.

Passive funds can be a good option too if the markets fall due to increasing Covid numbers since they tend to passively follow an index. Hence, as the markets recover after the fall, the fund generates returns accordingly.

vishav@outlookindia.com