 "Stop SIP or use crash as opportunity? What should your market strategy be?")
The stock market on Monday experienced a sharp decline, mirroring a global sell-off triggered by concerns over a potential US recession and escalating tensions in the Middle East. The primary catalyst for this decline is a combination of global factors, including concerns about a potential US recession triggered by weak economic data and escalating geopolitical tensions. Additionally, the yen carry trade has also contributed to the market's downward trajectory.
The benchmark Sensex and Nifty 50 indices plummeted over 3%, marking a significant reversal from the recent positive trend.
Key factors contributing to the market crash:
Weak US jobs data has fueled concerns about a potential economic slowdown, leading to risk-off sentiment among investors.
Rising tensions in the Middle East have added to the overall market uncertainty.
After a recent rally, some investors may have booked profits, exacerbating the downward pressure on the market.
More From This Section
But is Monday's crash a short-term sell-off or should investors be worried and rethink their strategy?
Despite the sharp fall, market experts believe that the current downturn is likely to be temporary. The Nifty50 and Sensex are expected to find support around the 24,200-24,100 and 78,400 levels, respectively.
"Every market decline should be viewed as an opportunity to establish new long positions for long-term holding. The Nifty50 has major support in the 24,200-24,100 range, and prices are unlikely to fall below this zone, while the Sensex has significant support around 78,400, near the 55-day EMA," said Vishnu Kant Upadhyay, AVP, Research and Advisory at Master Capital Services Ltd.
The general advice: Keep Calm. Stick to Asset Allocation. Stay Invested.
The general advice: Keep Calm. Stick to Asset Allocation. Stay Invested.
India's market correction not surprising
Global factors i.e. expectations of a US recession/hard landing and reversal of the Yen Carry trade (Japan) sent shock waves across the world resulting in global markets selling off and hence India is no exceptions in that trade. Having said that, it was well known that like many other markets, Indian markets were trading above average multiples (valuations) and hence this correction is not surprising in our view. This volatility could continue for a few weeks if not months and hence one should continue to focus on the long-term story India offers and we would urge investors to continue with their systematic monthly investments through SIPs (rupee cost averaging) which is designed to take advantage of such volatility (and avoid timing the market)," said Jay Kothari, Investment Strategist and Global Head- International Business, DSP Asset Managers.
Kothari believes over the last 5/10/15 years, there have been multiple events (domestic and global) but investors who have stayed invested through these times are the ones who have seen wealth creation and hence taking a similar approach one should brace for the upcoming volatility but not stay away from the market if the economic prospects continue to look encouraging.
Portfolio diversification need of the hour
Diversification: Most investors who have a sizable investment portfolio tend to put all their eggs in one basket or invest in several funds.
An ideal portfolio, according to Value Research, should have not more than four-five funds. The core of your portfolio should be made up of one-two diversified flexi-cap funds. Apart from that, you can invest in ELSS funds to save taxes.
Mid- and small-cap funds can help provide an edge to your returns. However, since these funds are very risky, they should not comprise more than 20-25 per cent of your entire portfolio.
"In light of the recent market volatility, characterized by a significant plunge in benchmark indices and soaring market anxiety, it is crucial for investors to approach their portfolios with a strategic mindset.. Investors should prioritize portfolio diversification, ensuring that their assets are spread across various sectors to mitigate risk. Maintaining liquidity is essential during these times; holding a portion of the portfolio in cash or cash equivalents allows for greater flexibility to seize potential buying opportunities as the market stabilizes," said Chatradhar Paritala, Executive Director - Wealth (Hyderabad Region), Client Associates.
Don't jump into fresh investments just yet
Investors should wait for the market to stabilise before jumping into fresh investments. Fairly valued largecaps and defensives like FMCG and Pharma can be bought once the market stabilises," advised V K Vijayakumar, Chief Investment, Strategist, Geojit Financial Services
Invest only if you can go long
"The Indian economy is likely to be more resilient than other smaller economies and hence investors could look to add at market corrections. At the same time, one must realise that the pace of market performance in the last few years has been unreal and is unlikely to sustain going forward. One must only invest if one has suitably long investment horizon to tide over periods of volatility in the interim. Investors with ability to hold for long term should look to invest over the next few weeks of correction in a systematic manner in pockets where valuations are not stretched. This is likely to be a medium term correction, which will provide long term investment opportunity for the patient investor. One must keep return expectation low in the short term, keep investing systemically over the medium term with an eye to reap benefits from the growth over a long period of time," said Sandeep Bagla, CEO, TRUST Mutual Fund.
Investors need to maintain liquidity as market valuations are high
" The valuations in the larger markets are unquestionably high, this is clear from the fact that many fund managers in the mutual fund business are hoarding more cash, which shows their unwillingness to invest at the current levels.
" The valuations in the larger markets are unquestionably high, this is clear from the fact that many fund managers in the mutual fund business are hoarding more cash, which shows their unwillingness to invest at the current levels.
The India VIX, a measure of market anxiety, surged to 22 in a single day, up 52%.
Investors should reassess portfolio diversification, maintain liquidity, and focus on high-quality stocks amidst recent market volatility and should avoid panic selling. Given the high valuations and increased market anxiety, it's prudent to hold a portion of your portfolio in cash or cash equivalents, providing flexibility to take advantage of potential buying opportunities," said Chatradhar Paritala, Executive Director - Wealth (Hyderabad Region), Client Associates.
When to exit?
"No one can time the market consistently over the long term. You should exit your investments only if you need the money or if your fund has been underperforming. If your fund is underperforming, you should assess whether the entire category has been struggling or it is just your fund. If your fund is underperforming as compared to its peers, then wait for a few months to see any signs of revival. If not, then you should exit your fund. But you should keep in mind the exit load and the taxes," according to Deepika Saxena of Value Research.