Market Correction: Sensex, Nifty 50 down 10% from peak; 4 investment strategies to manage volatility, maximise gains

Investor sentiment on Dalal Street has turned increasingly cautious as the Nifty has dropped over 10 per cent from its record high of 26,277, while the Sensex has tumbled over 8,500 points from its peak. Although an official bear market is defined by a 20 per cent fall from recent highs, retail investor portfolios are already showing signs of significant distress.

Indian markets continued their downward trend on Thursday, November 14, marking a sixth consecutive session of losses. Despite a positive opening, the indices were weighed down by weak global cues, a rise in the dollar index, a depreciating rupee, and ongoing foreign investor selling. The Sensex dropped 266 points, or 0.34 per cent, to 77,424.81, while the Nifty lost 116.25 points, or 0.5 per cent, settling at 23,486.10. Both benchmarks remain over 10 per cent below their record highs from September, with the indices losing more than 4 per cent in just these six sessions.

This marks the most substantial correction since March 2023. Despite domestic institutional investors maintaining their belief in India’s growth story, foreign institutional investors (FIIs) have been pulling back from Indian equities. This trend is driven by the allure of China's market, where lower valuations and stimulus measures have attracted global attention.

Moreover, compounding market concerns, the Q2 earnings season saw a notable rise in corporate downgrades, the highest since early 2020. The results underscored a disconnect between current profit trends and high market valuations, suggesting that in the near term, earnings performance may not be enough to justify the previously optimistic pricing of stocks. This has further amplified caution and contributed to the recent wave of selling.

Navigating the inherent volatility of equity markets can be challenging for investors, particularly when it comes to making sound investment decisions in the short term. Neeraj Chadawar, Head of Fundamental and Quantitative Research at Axis Securities, emphasises that while returns in equity markets are nonlinear and unpredictable in the short term, equity investments can yield substantial gains in the long run due to the power of compounding. To achieve long-term success, Chadawar shares strategic insights aimed at helping investors effectively manage market fluctuations.

Equity markets, known for their nonlinear and volatile nature, often pose challenges to investors looking for short-term gains. According to Neeraj Chadawar, the path to navigating these uncertainties lies in adopting a long-term perspective. He explains that while the short-term direction of the market is difficult to predict and timing the market can be one of the most daunting tasks, the key to long-term success is staying invested over time. 

Investment Strategies

To manage volatility and maximize long-term gains, Chadawar outlines four key investment strategies:

Invest Systematically and Focus on the Long Term: Predicting the onset of a market crash or a surge is nearly impossible due to fluctuating market sentiment. Chadawar recommends a systematic approach to investing rather than a lump sum investment. Gradually building a portfolio over time can help mitigate the impact of sudden market shifts and lead to better outcomes in the long run.

Define Goals and Employ Risk Management: Long-term wealth creation requires clear, defined investment goals. Chadawar advises setting specific short-term and long-term objectives to help determine an appropriate mix of asset classes based on one’s risk profile. During periods of market volatility, sticking to these defined goals and maintaining a disciplined approach can prevent impulsive decisions and ensure sustained growth.

Practice Asset Allocation: A well-balanced asset allocation strategy is crucial for managing the risks associated with individual asset classes. Chadawar highlights that diversifying investments across various asset types can help reduce the impact of market drawdowns and cushion the portfolio during periods of sudden corrections. Asset allocation serves as a tool to manage volatility and enhance long-term portfolio resilience.

Stay Calm and Avoid Panic Selling: Market declines often trigger emotional responses influenced by negative news, which can lead to impulsive decisions. Chadawar emphasises the importance of staying calm during such periods. “A diversified portfolio with quality stocks will help you withstand volatility more successfully,” he advises. Resisting the urge to panic sell and maintaining composure can help investors weather temporary market fluctuations and stay on course toward their long-term goals.

The volatility of equity markets can be daunting, but as Neeraj Chadawar from Axis Securities points out, long-term success is rooted in discipline, strategic planning, and a focus on sustained investment. By following systematic investment practices, setting clear goals, maintaining appropriate asset allocation, and avoiding emotional reactions, investors can navigate market challenges more effectively and harness the benefits of compounding over time. Embracing these strategies ensures that investors remain well-positioned to achieve their financial objectives amidst an ever-changing market landscape.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.