The stock markets are witnessing huge sell-off as the coronavirus pandemic is expanding its geographical footprint each passing day; crude and commodity prices have tumbled stroking fears of global recession. The margin calls and stop losses are triggering panic selling, which in turn is creating a cyclical effect and markets volatility is likely to intensify further.

In such a situation what should a long-term investor do? Analysts suggest that individual investors stay away from small and mid-cap stocks until the volatility settles. Instead, they should look at value investing.

Vasanth Kamath, co-founder and CEO, smallcase Technologies, says in such volatile markets, it is best that investors stick to their plan, remain focussed on the long-term picture, and stay away from panic markets. “Such events are great reminders of the need for a diversified portfolio, and investors should start looking to build that in order to mitigate the impact of any such events in the future.”

Hold on to quality stocks

While volatility will continue in the near-term, investors should not sell quality stocks in panic. Markets will take a while to recover from the significant price damage and there could be intermittent relief rallies. Siddhartha Khemka, head, Retail Research, Motilal Oswal Financial Services, says, long-term investors with good quality stocks should hold on to their portfolio and see through the current storm. “Even in the past we have seen many major economic issues impacting the market. However, we have recovered from most of them over a period of time. In fact, investors sitting on cash can start accumulating 10-15% of overall allocation on a gradual basis,” he says.

Continue SIPs

Mutual fund investors should continue their systematic investment plans (SIP) as they allow an investor to buy units on a given date each month. The biggest advantage of an SIP is that the investor does not have to time the market. More units are purchased when a scheme’s net asset value (NAV) is low and fewer units when the NAV is high. When the two situations are analysed together, the cost is averaged out and, the longer the time-frame of the investment, the larger will be the benefits of averaging. Also, investors who are willing to invest in stocks directly can look at stock SIPs which are offered by brokerage houses.

In mutual funds, an investor can invest through systematic transfer plans (STPs) where funds are transferred from one scheme to another in the same fund house, ideally from debt to equity. In volatile market conditions, individual investors can stagger investments through STPs by investing a lump sum in debt, which could be a liquid or ultra short term fund, and then transfer a fixed amount either monthly or quarterly into a equity fund.

Diversify portfolio

Ideally, investors must build their portfolio with an equitable mix of equity, debt, gold and real estate which will deliver in all weathers. Ideally, an investor must have a portfolio with a mix of high quality mutual funds with proven track record, listed stocks and tax-free bonds that will take him through market ups and downs. Also, keeping your portfolio simple will make it extremely efficient and powerful in the long run. To meet regular cash flow needs, look at liquidity and protection of capital. If an investor wants liquidity, the redemption amount should not erode the original capital invested. Track the performance of your investment every year and rebalance the portfolio if required.