One way to deal with market volatility is to have a long investment horizon. Kaustubh Belapurkar, director-manager research, Morningstar Investment Adviser India, says: "Equity fund investors need to stick to a horizon of 7-10 years." He adds that according to a study done by Morningstar India, over the past 20 years, if an investor had put money in a Nifty Exchange Traded Fund on any day and held his investment for at least seven years, he would never have made negative returns.
Mutual fund investors with a longer-term horizon should continue with their systematic investment plans (SIPs). Those having lump sum amounts should opt for the systematic transfer plan (STP) route. "By stopping SIPs when the markets turn volatile, you run the risk of trying to time the markets, which is impossible for long-term investors to do," says Nikhil Banerjee, co-founder, Mintwalk.
Investors who until now were riding the momentum in the markets should watch out. "Such investors could wait out the current volatility by shifting to liquid funds," adds Banerjee. Mid- and small-cap stocks, which have higher funding requirements, may suffer more due to high interest rates, so avoid being over-exposed to them.
Debt fund investors should stick to shorter-duration funds. Joseph Thomas, head, research, wealth management, Emkay Global Financial Services, says: "Only when the 10-year bond yield touches 8.35-8.40 per cent should investors begin to take an exposure to duration-oriented funds." Also, avoid taking too much credit risk at present. "Stick to funds that invest predominantly in AAA-rated bonds," says Maheshwari.
As for direct equity investors, with earnings improving, on the one hand, and stock market prices correcting, on the other, many strong franchises will become available at attractive valuations in the coming days. Bodke says: "Buy good franchises in a staggered manner."
According to Maheshwari, "In a tough market, quality stocks get segregated from the poor-quality ones. And when the markets recover, the former show better recovery." Joseph suggests at a time when liquidity is low, cash-rich and debt-free companies will enjoy a premium.