Sensex, Nifty crack: Young investors should brace up for volatility, focus on long-term goals

Young, inexperienced investors should brace themselves for market volatility in the near-term and stick to their asset allocation to achieve long-term goals

Stock market indices closed 6 percent lower on June 4, even as the day-long exercise of counting of votes cast in Lok Sabha 2024 elections inched closer to completion. This is bound to come as a shock for new retail investors who have only seen a bull run at the markets in the last four years since COVID-19 hit Indian shores in March 2020.

However, despite the election result-induced market volatility that looms large at present, retail investors should stay focused on their long-term goals. While the sharp drop in the seats won by the Bharatiya Janata Party-led National Democratic Alliance (NDA) has dampened market sentiments, the formation seems to be coming back to power, albeit with significantly reduced majority.

Focus on your long-term financial plan, rather than market movements

“The formation of a new government is a once-in-five-years event. So, this should not decide your investment strategy. Your investment approach should be based on your financial goals, risk profile and asset allocation,” says Amol Joshi, Founder, Plan Rupee Investment Services.

This piece of advice is particularly relevant for young, first-time investors who may have entered the markets only in the last four years, and have not tasted the agony of market crashes of this kind. “New investors should be especially careful now to ensure that they do no get blown away by the volatility storm. Markets are sentiment-driven, but they should not make their decision to buy or exit based on the knee-jerk reactions seen on the results say,” says certified financial planner Nisreen Mamaji, Founder, Moneyworks Financial Services.

Also read: How to invest post election results? Equities still the best bet, continue SIPs and build a diversified portfolio, say experts

Continue investing through SIPs in flexi-cap, multi-cap mutual funds

There is no need to make major changes to your financial plan only because of the election verdict and the resultant volatility. “You need to be mindful that equity market valuations, post the correction, continue to be at a significant premium to long term averages, and even more so on mid and small caps. Thus, investors should stay focussed on their asset allocation and maintain a marginally underweight position on Indian equities until valuations are more in line with historical valuations,” says says Vishal Dhawan, Founder, Plan Ahead Investment Advisors.

There is no doubt that you systematic investment plan (SIP) and systematic transfer plan (STP) should continue. “Investments in balanced advantage funds, and gold can be considered, if investors have space available. The need to be geographically diversified continues to be a critical requirement for investors, to insulate themselves against a single country’s risks that can emerge due to events of this kind,” says Dhawan.

Amol Joshi believes that it’s best if retail investors to invest in mutual funds and let fund managers take these calls on deployment of money now. “We are now receiving queries from investors around sectors such as infrastructure, manufacturing, railways, PSUs and so on. We suggest mutual fund investors stick to basics. That is, leave this decision to the fund manager for investing. A diversified fund can take exposure to all these themes and sectors. Within diversified funds, go with flexi-cap or multi-cap funds,” he says.

On the other hand, Colonel Sanjeev Govila (retd), CEO of financial planning firm Hum Fauji Initiatives believes retail investors should also focus on growth sectors to gain from the long-term India growth story. “Equity is likely to continue to do well, short-term hiccups notwithstanding. So, invest with long term outlook in growth sectors like infrastructure, banking and financials, and manufacturing,” he says.