The global economy has officially entered a phase of recession. US Fed Jerome Powell told investors to prepare for long periods of “unemployment and recession”. Even economist Nouriel Roubini, a renowned economist who was at the forefront of accurately predicting the path of the 2008 recession, predicts a long and ugly recession that could well last until the end of the year. next year.
Several senior corporate executives echoed similar sentiments. An IDC survey estimated that 59% of them expect a recession to come. The situation is extremely grim in Europe, where soaring prices have already seriously shaken consumer demand.
A recession is usually a sign of a period of economic decline in the industrial and commercial activities of a country. Although India is not entirely immune to the looming global recession, it may well stand out as a lone shining star, according to S&P Chief Global Economist Paul Gruenwald.
Around the world, bond yields are soaring. At least 90 central banks have raised interest rates this year in a bid to tackle record inflation plaguing the world. This is the first telltale sign of a recession. Product prices are rising, companies are cutting costs in an effort to maintain budding profitability, which often means layoffs, high unemployment and fewer incentives.
While there’s not much we can do to control macro factors as a whole, there are ways to avoid its hard landing impact on your portfolio.
Shifali Satsangee, founder of Funds Vedaa, an Agra-based financial consultancy, says the key is to prioritize and come up with a clear spending strategy.
“Start by defining and charting the family’s financial goals in a clear and concise manner. Once that’s done, set a budget accordingly. It is also important to have a provident fund in place and appropriate safety nets in the form of health and life cover.
Reducing discretionary spending is equally important, says Nema Chahaya Buch, a Pune-based finance professional. “On the equity side, exposure to growth stocks with a high P/E ratio would limit your financial erosion. Blue chip stocks will be a safe bet as they are reasonably stable in nature. Investing in physical assets or any alternative asset class such as gold tends to offset the recessionary effect, given their countercyclical nature. On the fixed income side, there is a tendency to increase inflationary pressure. Inflation-indexed bonds should therefore be considered,” she says.
“If you want to position your portfolio for growth as the economy emerges from recession, you should consider cyclical stocks. Those stocks would go up first when the economy starts to improve,” she says.
Above all, don’t lose faith in good old regular and disciplined SIPs. “Indeed, one can also realize one’s true financial potential by starting to invest early, focusing on goal-based investing through SIPs, in which funds are earmarked for each goal, channeling savings into tax-advantaged and financial products that give healthy inflation-adjusted returns, and reducing portfolio risk by diversifying asset classes, so that a solid body of stock is created for the family year after year,” she concludes.
Read all Latest business news and recent news here