With the ruling BJP not performing as widely expected in the Lok Sabha polls, the Indian stock market saw a bloodbath on Tuesday. Benchmark indices Sensex and Nifty tanked over 8% intraday. There are apprehensions that BJP’s lower seats tally might slow down reform measures initiated by the ruling government in its second term.
Despite the NDA looking all set to achieve an overall majority, the market remains uncertain and is staring at volatility in the short to medium term. The India VIX has surged 31% to above 28 levels. This uncertainty will certainly force investors to have a relook at their portfolios and opt for investment avenues that will protect them against market meltdown, like we experienced today. Systematic Investment Plan (SIP) is one such financial tool that helps investors handle such situations with ease and ensure that they incur minimum losses.
Mutual fund SIP best investment strategy during market downturns
One of the primary advantages of SIPs is the benefit of Rupee Cost Averaging. With SIPs, you invest a fixed sum of money at regular intervals, irrespective of the market price of the units. This strategy results in the acquisition of more units when the prices are low and fewer units when the prices are high. Over time, this approach leads to a lower average cost per unit. This can prove beneficial in volatile market conditions, reducing the risk associated with timing the market.
Indices log biggest single-day fall in 4 years
Benchmark stock indices Sensex and Nifty tanked over 8% intraday and settled 6% lower on Tuesday. The Sensex reversed Monday’s sharp gains by nosediving over 6,200 points intraday. The index finally settled the session nearly 4,400 points lower, recovering around 1,800 points. The NSE Nifty fell 1,982.45 points or 8.52% to 21,281.45 during the day.
“The unexpected outcome of the general election sparked a wave of fear selling in the domestic market, reversing the recent substantial rally. Despite this, the market maintains its expectation of stability within the coalition, led by BJP as the major election winner, thereby mitigating substantial downside in the medium term.
“This is likely to lead to a major shift in political policy with a focus on social economics, which will have a positive effect on the rural economy,” said Vinod Nair, Head of Research, Geojit Financial Services.
What spooked the market?
Investors like certainty and continuation of policies. The BJP’s weaker performance in this Lok Sabha polls has triggered apprehensions that this might impact the government’s capacity to initiate reform measures.
“India is a long-term structural growth story. A lot of elements are in place. Over anything the economics should prevail. We are already in top in factors like GDP, market cap, demographic dividend etc. It will be an endeavour for all the policy makers to take the country to further heights. I don’t think any derailment on these efforts is in anybody’s interest. As a country we have seen many regime changes. Businesses and markets have weathered all of it and good businesses have always rewarded the investors. If valuations get more reasonable from here on because of some factors, more the reason to invest in India further,” said Manish Jain, Director – Institutional Business (Equity & FI) Division at Mirae Asset Capital Markets.
