Investing in volatile times

STOCK MARKET

The best investment option in a volatile market is to stay out. If you have not yet invested, then please don't.

If you have holdings, then HOLD. Do not panic and do not sell. You can, however, increase your existing stockpile through additional purchases but only if you are lowering your average cost of acquisition. In a volatile market it is very easy to lose money if you are not careful.

Hedging might be good way of protecting your investment so you can probably take an exposure in futures. But for that, you need deep pockets since the contract size in India is still large, and further, you need to be able to read the markets correctly.

Futures and options are best played by those who have some knowledge of the markets either on their own or if you are in close contact with market movers.

Making the right call on which way the market will move is the most crucial thing.

In case you still want to give it a try, it would be better to start with options,where if you lose it will only be the premium you pay for buying the option.

So what can you do in a volatile market, if you are the active type and want to make money?

In a market where the swings are wide and there is no way to predict the movement, it is best to stick to blue chips. Do not try to indulge in day trading (buying and selling a share within a day), unless you are very sure of the way your scrip will move.

If a scrip you have invested in in a volatile market is losing, ride out the turbulence. If the fundamentals of the company are good, it will stabilise in the medium to long term and eventually rise.

However, if you are still interested in short-term gains, give the stock at least a week, between entry and exit. Be more modest about the quantum of gains -- so that if you have been looking at 20 per cent returns in normal market conditions, modify it to 10 per cent during volatile times.

Also, do not play for very high stakes. Keep the investment amounts modest so that in case you have to book losses, it will not really pinch.

There are a lot of reasons for the volatility in the market -- like for instance, right now it is driven by political uncertainty. This is not something you can really do anything about so you have to invest in good stocks asnd forget about it for a while.

However, if the impact is due to some events taking place outside, such as apprehensions about a rise in interst rates in the United States and the slowdown its Chinese economic growth, look for sectors which are totally India-oriented -- those that are unlikely to be impacted by global events. Cement and entertainment are two such sectors in the Indian context currently.

If you are sensible and keep a level head and do not give in to panic, decent returns can be made in volatile market conditions. And in the long run, such investments can even trump market returns.