As the benchmark indices are down nearly 7% from mid-September peaks on the back of relentless selling by foreign portfolio investors, rising US Treasury yields and the Israel-Hamas conflict, retail investors must take note that every correction is a great opportunity to buy quality stocks at reasonable price for long-term gains. Market corrections are ideal for rebalancing the portfolio, going for value funds, looking at a multi-asset strategy and staying invested in their planned equity investments.
Do not sell in panic
Harshad Chetanwala, co-founder, MyWealthGrowth.com, says volatility is a part of stock market investment and patience is the key for investors during these times. “It is nearly a 5% fall over the last two weeks and further volatility can be used by investors to add more if they have a surplus. Panicking at present may not work in the interest of investors. Occasions like these can help you invest at the corrected prices,” he says.
Investors must keep in mind that timing the entry in equity investments is an impossible task. Instead, they must buy in dips. Sushil Jain, CEO, PersonalCFO.in, a wealth management firm, the market correction is a good opportunity for investors to follow asset allocation. “Investors should gradually increase equity exposure based on their asset allocation in every 5% correction. They should continue their investments in large- and mid-cap stocks.”
Similarly Siddhartha Khemka, head, Retail Research, Motilal Oswal Financial Services, says given the global uncertainties, there could be higher volatility in the near term giving long-term investors an opportunity to accumulate quality stocks at lower levels. “We suggest making higher allocation towards large caps as valuations are comfortable along with steady growth prospects.”
Opt for value funds
Value investing can work where fund managers identify stocks which are trading at significant discounts to their intrinsic value. Value funds buy stocks when prices are low and the funds can generate higher returns when the market discovers the value of these stocks. Value investments require patience as it needs a full market cycle of a few years to realise the gains.
Continue with SIPs
Investing through systematic investment plans (SIP) is a good way to build a long-term portfolio. As a sharp decline is followed by a recovery, continuing with an SIP will ensure that the investor is well positioned to take full advantage during the recovery phase. In fact, SIPs get better when investors accumulate them during volatile periods as more units get accumulated to the folio.
Go for hybrid funds
Hybrid funds are ideal for those investors who want to take limited risk and generate overall returns between equity and debt. Aggressive hybrid funds that are equity-oriented are ideal for those who are looking for a more aggressive alternative to pure debt funds and want to invest in equity for higher return potential, while limiting their losses in case the markets fall.
Investors can look at balanced advantage funds which invest in a mix of stocks, debt and arbitrage opportunities depending on the market condition. “Conservative investors can move to equity hybrid or debt hybrid fund, says Jain.
MAKING THE MOST OF VOLATILITY
- Do not stop your SIPs. Rather add more during volatile phases as more units get accumulated
- Hybrid funds, especially balanced advantage funds, are ideal for those who want limited risk exposure
- Make higher allocation towards large caps since valuations are comfortable