Domestic market has corrected itself to almost 35% since the start of this month. Not only stock prices have come down from 20-30% but returns on equity mutual funds have also fallen significantly down. SIP for both 5 and 10 year-period is probably in negative territory.

Now the question is what to do? Is it time to sell or start buying at a lower price.

The answer is no, do not do both, use this time to strike balance between both. 

There’s no doubt in the fact that the equity market across the globe has been overvalued for long. This means correction in stock prices can mean a move towards rational stock prices. One of the triggers of this correction in the market is Covid 19, but point to be noted here is that Covid 19 is one of the triggers. And as this trigger is unknown, the extent to which the market correction will be done is unknown. 

The market is in control of no one, what can be controlled is your reaction as an investor and your decision on what to do with the money, or more importantly what not to do. 

What not do as an investor?

Don’t feed your urge to react immediately – 

Give some time to heal the market, if you decide to sell now, the temporary losses will become permanent. There is no need to sell if you don’t need money in an emergency. The history of bad times has shown the market that goes down comes up and recovers within 3 to 6 months. Though the time and pace of recovery cannot be predicted in the long run the downs don’t affect the investment much. 

Stop checking portfolio daily –

This will give you some serious heartache, and the red lines will urge you to react and save whatever left amount you have. Right now, you will see a bigger loss in values. So, just have patience and wait for the time to be better and market to be healed.

Don’t buy cheap stocks – 

Don’t start buying in rush, because the trigger affecting the market is unknown we don’t know till when will it exist and how much effect it is going to have. Therefore, it’s not the right decision to do impulsive buying and what’s the point in buying something that does not recover with the market. The best decision is to wait when recovery begins the quality of the stocks starts to show.

What to do as an investor? 

Don’t stop your SIP’s – 

The mantra of SIP is when the market is down you get more units. So, never stop your SIP. It’s hard to say till when the correction of the market will continue, regular buying will give people entry at all lower levels. 

Stagger lump-sum buying – 

With lump sums or cash surplus, people should think about buying a little at a time. The market correction can carry on for longer than people think; in the 2008 market correction, the bottom was hit three times. If someone had invested all the surplus the first time, they might have been left with nothing to invest. 

Focus on quality – 

What people buy is equally important. Both in stocks and funds, the focus should be quality and consistency. Funds, which have shown consistent long-term returns rather than the best returns, and come from asset management companies with well-established investment and risk processes, should be the first choice. In the case of stocks, people should focus on the quality of management, quality of balance sheets and consistent earnings growth. Rather than buying, what looks cheap, investors should buy good quality at a low price. 

Ideally, one should neither stop regular investment nor do impulsive investment at this time. Rather people should be consistent. But, this situation is hard and people are going to lose jobs, and the businesses are going to face losses so in case of emergency taking out money is the only option left.   

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).