Indian stock market has suffered sharp losses on Thursday with the Nifty 50 benchmark index slipping below the 10,000 mark for the first time in two years and a sharp fall of over 2900 points in Sensex.
There are multiple reasons for the falling market. Few of the major ones are
- Weak demand for oil resulting in fall in prices of oil,
- WHO declaring Coronavirus as the pandemic which led to panic among public,
- The losses followed a sell-off in global markets which did not spare even the bluest of the blue chips, making investor worry about the further downside.
Besides, Indian Financial system too is under serious stress owing to crises starting with PNB, IL&FS, DHFL and PMC bank. Investors were already worried over the recent YES bank crisis and now the significant fall in the markets.
Though we are at the deep end of the pool, it is highly recommended that investors should wait and let the dust settle. If we recall, every time the market witnesses a sharp fall, it always bounced back the next year with double digit returns.
After global financial crisis in 2008, the marked rose by around 70% the following year. Similarly after European Debt crisis in 2012, markets moved up by close to 27%. Even after experiencing a fall in 2016 owing to BREXIT announcement, markets recovered giving a return of close to 15%. Going by the history, the similar returns can be easily anticipated in coming future.
So what next?
Let’s see some Dos and Don’ts to follow in current market situation:-
- It is advisable to invest in Index Funds to take advantage of low price. We should NOT invest entire amount at once but 20-30% of investable amount will be ideal scenario.
- It’s time to review your current portfolio. One should seriously see the portfolio of the mutual funds which you hold. Overweight in any of the sectors can seriously damage your portfolio. Get in touch with your Financial planner for the same.
- Good amount of SIP in large cap or multicap fund is highly advisable. If you have lumpsum amount, it needs to be invested as per your risk appetite. STP is recommended here from Liquid / Debt Mutual Fund to Equity Mutual Fund.
- Do not invest in Derivative Market – Futures and Options. STRICTLY PROHIBITED.
- Do not gain exposure to one individual sector or stocks. Diversify your portfolio.
- Do not Stop your SIPs at this moment.
- Do not redeem your investments until and unless it is for an urgent and unavoidable need.
Ones who make the mistake of redemption or stopping the SIPs are the ones who will lose out the most on the opportunity to grow their wealth.
So, consider this as an opportunity to make wealth at this major correction in the market and be patient!
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(Head of Training and Development at Financial Hospital)
Disclaimer: This article shares the view of the author only.