In order to safeguard the money of the depositors, the US government and Federal Reserve launched rescue efforts to protect depositors when the Silicon Valley Bank (SVB) failed. Other banks, such as Signature Bank and First Republic Bank, also showed signs of instability. Credit Suisse's shares are declining and Saudi Arabia's backers rejected more assistance. The failure of SVB and other banks presents a risk to equity investments due to potential transmission or repetition of the 2008 global financial crisis. Does it present a risk to your portfolio of equity investments? Don't draw any hasty assumptions. Instead, allow me to discuss how your equity portfolio will be impacted by this:
1.WHY MAYBE THIS ISN'T THE 2008 CRISIS?
The SVB collapse is a result of concentrated deposits, poor risk mitigation, and insufficient oversight. This could lead to problems for other regional banks with similarly concentrated funding sources. The GFC was caused by subprime lending and the housing market meltdown. Controlling the threat of contagion should be simpler than controlling the Great Financial Crisis, as the balance sheets are in better shape.
2.RISK OF CONTAGION: WHAT IS IT EXACTLY?
Contagion risk refers to the potential for financial issues at one or more banks to spread to other banks or the whole financial sector. In simple terms, it is the tendency of the financial meltdown to spread to other markets and places. SVB and other banks are the targets of a localized bank run, which could affect other aspects of the economy.
3.HOW WILL INDIA BE AFFECTED BY THIS FAILURE?
A few startups, venture capital firms, and a few small banks may be impacted by this commercial issue. Additionally, it might short-term bank clients and investors with uncertainty. Indian banks are better safeguarded and regulated as a result of the RBI's oversight, thus the failure of SVB won't have an effect on them.
4.HOW DOES THIS AFFECT A PERSON'S EQUITY PORTFOLIO?
The US banking system is affected by the SVB problem, which could lead to a rally in stocks, particularly in higher-performing nations like India, but caution is needed due to the unpredictable nature of the stock market.
5.WHAT IS THE BEST WAY TO MANAGE MY EQUITY PORTFOLIO?
Diversifying one's investments is essential to lower risk. It is important to build a portfolio that is based on one's risk profile and is invested to help them reach their long-term financial goals. Assessing one's stock portfolio's health can help determine if they are holding onto solid stocks or have any duds. If one has a financial advisor managing their portfolio, they can provide advice on the best course of action. If the ratio of your equity portfolio to your total net worth is less than 20% or 30%, don't be alarmed unless that is the best allocation for your risk profile. The best allocation for a risk profile is to invest more than 50% of capital in the stock market through equities or mutual funds. To take advantage of this volatile period, it is important to buy and increase allocations rather than panic.
6.AIM HIGH FOR INDIA
The NSE whitepaper claims that during the previous 19 years since June 1999, an investor in the NIFTY 50 index with a 5-year or longer time horizon has never experienced a loss. Please bear this in mind. For investment horizons of 7 and 10 years, respectively, for 48% and 60% of the time, the NIFTY 50 index has consistently generated annualized returns of more than 15%.
7.QUIT TAKING SIPS AND GO AWAY
The best buddy of a SIP investor is market volatility. Market volatility is a challenge for SIP investors, but those who keep up their SIPs and invest in the market will eventually win. Don't miss out on India's growth, as it is set to grow at an unparalleled rate over the next 15 years.