A volatile stock market is a harsh reality of today. Unfortunately investors don’t have many options but to invest in the volatile stock market among all asset class. In my posts on Stock Market, i highlighted this point even when the market was in bull phase. Traditionally, there are 4 ways to invest your money. These options are real estate, gold, equity and traditional savings schemes like FD, RD etc. Except for equity, rest 3 investment options are almost dead or redundant in a modern world. The returns from gold and real estate are negative from last couple of years. The pain will continue in real estate and gold. At the same time, there is a huge pressure on an investor to generate good returns due to uncertain economic conditions. This explains the strong equity inflow in a last year or so from domestic investors.
Recently, the stock markets corrected up to 10% due to Chinese yuan devaluation but again recovered a bit very fast. The reason being, the factors responsible are external. I was flooded with queries from my readers on what to do in the volatile stock market. Most of the readers are small retail investors. I was glad to know that retail investors are now more mature and knowledgeable compared to a crash of 2008. Universally, The 2 factors which drive the stock market are greed and fear. Greed is responsible for bullish sentiments whereas fear is responsible for bearish sentiments. Always remember that whatever goes up will definitely come down and vice versa. This is a temporary phase. Therefore, it is imp to book profits at regular intervals in stock market. When NIFTY was at 2600 in 2008 then no one imagined that it will touch 9000 in just 7 years i.e. almost 3.5 times. When NIFTY touched 9000 then also no one imagined that it will again touch 7700 level in few months :). The best part is long-term story in the equity market is always intact. If i ask someone who is a regular investor from last 7 years that how many times he faced such volatile stock market. He/she will hardly remember a couple of instances in last 7 years. In reality investors experience volatile stock market average 2-3 times every year. Though this average will be now 4-5 times every year. Therefore, there must be 15-20 volatile stock market instances in last 7 year. Investors who stay invested more than tripled their wealth in 7 years and those who EXIT are regretting. The choice is yours…Let’s check what to do in a volatile stock market.
Volatile Stock Market – What to do?
1. Stay Calm: This is very imp. All problems in our lives are due to action and reaction. Similarly, PANIC SELLING is our biggest enemy. I am not saying that investor should not trigger STOP LOSS but during volatile stock market when everyone is getting beating then triggering STOP LOSS is not a good idea. Reason being, normally Margin calls trigger the sell-off. For example, during recent meltdown one of the stock Indiabulls Housing Finance collapsed more than 10% thus triggered STOP LOSS. Instead of panic selling, i retained the stock and it recovered fully in 2-3 trading sessions. In short, during volatile stock market you should not trigger STOP LOSS for quality stocks.
2. Rejig your stock portfolio: A volatile stock market is the best time to rejig your stock portfolio. You can boot out nonperforming or out of favor sectors. In the recent volatile stock market, investors dumped metal, private banking, power, Infra and commodity stocks. Out of these, Banking and Infra were favorites of analysts. The new favorites are IT and Pharma stocks which will benefit from new market dynamics which also include devalued rupee. A volatile stock market always throw new winners, but an investor should be well versed with the market dynamics to take advantage.
3. Cash in Hand: A volatile stock market is a great buying opportunity on dips. Some good stocks are normally available at 20% to 30% discount. Therefore, you should always keep 1/3rd of portfolio liquid to utilize this buying opportunities. For example, if the portfolio size is 10 lac then 3 lac should always be available liquid to buy at right opportunities. In past, i missed some very good buying opportunities in a volatile stock market due to liquidity crunch.
4. Don’t Listen to so called “Experts or Analysts”: Sometimes the market is spooked intentionally to provide buying opportunities to some big operators by creating bearish sentiments. When the market was sub 8000, targets of 7500 and 7200 were freely floating in the market. The market retraced from around 7950 all the way to 8600. This time also, one of the analysts gave a target of 6600 when the market was at 7700. All these arbitrary and over the air targets are just a fictitious story of these so called Analysts. Don’t listen to them and make your own judgment by studying the data and facts from reliable sources. No offense to anyone but i trust international news agencies and analysts compared to Desi ones. They are more practical and neutral in approach. In India, it is difficult to differentiate between paid and reliable news. Trust me no one knows anything and it is better to judge on your own.
5. Always Buy Quality Stocks: Last but not the least, always buy quality stocks. These are all weather stocks. Don’t go by stock tips floating in the market. Even if 10 out of 10 stock analysts are bullish on a stock, but it cannot help the stock. Best Example is Reliance. Almost all stock analysts gave a target of 1300, but it collapsed to near 800. A stock cannot rise just on the basis of an expansion plan. It is imp that market should buy the growth story. Normally it is an exit strategy for few who were trapped from quite long. A stock should not be bought based on short-term momentum. In a volatile stock market, such stocks correct sharply. Another stock is Tata Motors, there is a BUY call from the time it touched 400. It almost touched 300 recently. It’s a contrarian call and very very risky for the retail investor. Last example is ONGC, experts told that bottom is around 280-290, but i saw 208 on the charts. A weak student cannot top the class overnight. Even in a volatile stock market, you can find some good opportunities. Therefore better to avoid weak stocks till you are convinced about fundamentals and technical of a stock. At the same time, you should take care of few imp points which i highlighted in my post 7 Blunders of Equity Investment.
Concluding Remarks: Based on my experience i can say that buying opportunities always exist in the market even in a volatile stock market. You need an eagle’s eye to identify the same. Once you master this art then trust me the sky is the limit. In such a case, a volatile stock market will never bother as you are will be on an ongoing journey to look out for true hidden gems.
Disclaimer: Among all the stocks discussed in this post, i have a position in Indiabulls Housing Finance. The objective of this post is only to create an awareness.and educating investors about the Subject matter. The views and opinion expressed on this website are my personal views and is NOT an investment advice/Stock Tips whether to buy, sell or hold the shares of a particular stock. All investors are advised to consult their investment advisor and/or conduct their own independent research into an individual stocks before making any decision. I am not responsible for any loss or implications arising out of any decision taken by the readers after reading my post.
Copyright © Nitin Bhatia. All Rights Reserved.
Sir Crude oil prices have fallen since last year. Your opinion about its impact on indian economy, jobs in oil companies will be really helpful.
Too low crude oil prices are not good for Indian economy or World economy. Ideally, it should be near 70$. Job prospects in OMC’s are good as their profitability will increase due to decontrol of subsidy.
Thank you Sir.