of the most acceptable indicators to see if the overall market is over or under-priced is the PE multiple. Assuming that the Sensex has a five-year average PE multiple of 15 times and if the Sensex is now trading at 17 times, sell part of your equity holding and move proportionately into debt. Whenever this indicator falls below 15, do the reverse.
You can overcome or even take advantage of volatility by using pre-set entry and exit triggers for your investments. Here is an example to explain this. If you want to invest in Company A, set an entry price and an exit price. Make the investment once the stock reaches the entry price and exit once it reaches the exit price without waiting for a lower entry or a higher exit. Stay disciplined. This helps you avoid the two most common sentiments while investing–fear and greed. This strategy helps you avoid timing the market. For example, assuming Comp- any A has traded in the range of R450 and R700 in the last one year, you can set an entry price at say R525 and an exit price at R650. Whenever the market or stock volatility brings the price of Company A near R525, buy it and exit at R650 without pondering over whether you will get a better price at either the entry or exit end.
Market volatility offers numerous opportunities to profit. However, one needs to be agile and flexible in order to benefit from volatility. Active market players such as mutual funds are equipped to use volatility to book gains. Use their expertise to make your gains.
The author is MD & CEO, Icici Prudential AMC