Any retail investor’s story today: Every month, your hard-earned paycheck makes allowance for a humble but mighty SIP that holds the power to fund your long-term plans. However, recently, the markets haven’t been taking them higher but beating them down to new lows.
It’s easy to panic when all you see on your portfolio is red. But, is the panic justified?
What exactly has been happening in the markets?
The Nifty 50 has fallen ~10% in the last month, shedding a whopping 1,100 points in the last 30 days. In fact, the market witnessed the worst weekly fall of 5% in 2 years. While the Sensex and Nifty climbed new highs over the last few months, panic has taken over the market triggering a huge sell-off. Investors are said to have lost wealth worth Rs17lakh cr since the end of August.
From donning the “best performing market in Asia” title just slightly before the last month to the recent plunge and “the worst performing currency in Asia,” something seems to have really changed while we slept content over our “disciplined” approach to investing.
But, take a look at Nifty over the decade. It shows that fear gets the better of most, but there is growth in store for those who stay invested.
Through troughs and peaks, the Nifty has grown steadily and rewarded those who stay put.
So, what do we do about our monthly SIPs?
The rule is simple: Buy cheap, sell expensive. If you were to stop your SIPs now, you would be missing out on the lower cost of buying units, which serves as a lower base when the market goes up again and gives you a better return. So, if anything, it is time to indulge in more buying or stepping up your SIPs.
But, what if the market keeps falling? Are your funds’ net asset values (NAVs) at the lowest yet? Basically, how do we know if the market has bottomed out?
No one knows for sure. Hence, it makes sense to keep the SIPs going, you’ll get the benefit of “low and lower” costs anyway.
Buy on dips, but have we reached the far end yet?
The one thing no one knows in the market is whether this is the rock bottom for now.
Opportunities may come anytime: be ready for when the time is right. As far as the recent 10% correction goes, it makes sense to keep the mind open for a bigger fall and not invest all at once in select stocks.
You can invest 25-33% of the chosen quantity for now, another 25-33% later (if the stock goes lower), and so on. This way, one can again ensure that one gets the best of prices and retain liquidity for more opportunities to come.
Keep an eye on domestic and global cues in coming weeks
Looking at the way things are shaping up, we will need to brace for many a global and domestic event to come that may affect the already sensitive market.
What we are witnessing currently is a deadly cocktail of global and domestic headwinds. But, a few good signs may be all the market needs to calm the nerves sooner than expected.
What are these indicators?
Crude oil prices in the coming weeks, especially after the US sanctions on Iran kick in
Whether the RBI takes a more proactive approach should the currency fall to a greater extent from the current level, given its current stance of "calibrated tightening"
Whether more measures will be announced by the government, such as the ones made with regard to excise duty cut on fuel (to ease petrol/diesel prices), customs duty hike on non-essential imports (addressing current account deficit), and allowance of refinancing up to Rs30,000cr for housing finance companies (addressing liquidity worries)
Whether the government stays on course with respect to the fiscal deficit target amid the oil and rupee situation
Whether trade wars will intensify or ease
In a correction such as this, we will see investors who stay put and remain committed and opportune and even those who will be overwhelmed by panic, sell, and take losses. As per AMFI data, equity mutual fund net inflows doubled in Sep compared to Aug, which tells us a lot about the changing investor behavior in India.
There are too many variables at the moment to tell where the markets will go. But like all things, including many previous corrections and downfalls that beset the markets, this too shall pass, as and when certainty prevails on some fronts to calm skittish investors.