Don’t panic! There are ways to tame market volatility, say experts

In the last couple of weeks, shares of Paytm have corrected another 17 percent. The stock is trading at a 57 percent discount to the issue price.

Stock markets are going through a period of heightened volatility. The US stock markets, which heavily influence other markets, have corrected over nine percent in last one month on concerns over possibility of US Fed hiking interest rates. The US stock market index S&P 500 yesterday (i.e. January 25, 2022) closed 1.2 percent lower.

The domestic market benchmark index S&P BSE Sensex has corrected close to six percent in little over a week.

The broader markets have corrected more. The S&P BSE Midcap and S&P BSE Smallcap have corrected about eight percent each.

The rising number of COVID-19 cases, caused by the Omicron variant, have added to the negative sentiments. The outcome of the two-day US Fed meeting that ends today, will have further impact on markets. There are also rising geo-political tensions amid worries that Russia might invade Ukraine.

On the domestic front, the upcoming Union Budget on February 1, 2022, can also influence stock market movements.

While this is still nothing like the market crash in March 2020, following the COVID-19 outbreak (BSE Sensex has gained over 100 percent since then), here is what investors can do in the current market volatility.

Take profits off the table

If your investments are near your goals, it might be a good time to take some money off the table and park it in less volatile investment options, advises Amol Joshi, founder of Plan Rupee Investment Services.

You can move the funds to a fixed deposit of a large bank, liquid fund or an overnight fund. The returns in these instruments are less, but so is volatility.

However, investors who are still far away from their financial goals should not panic and stay invested.

“The stock markets tend to price in future events, and if the market has already priced in the impact of the ongoing US Fed meeting and the Union Budget, it is better to stay invested,” says Joshi.

Should you buy more?

This might also be a good time to top up your investments as stock prices have corrected. Those investing through Systematic Transfer Plans (STPs) or Systematic Investment Plans (SIPs) can also make additional investments through the lump-sum mode at the current levels to take advantage of the lower stock prices.

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This will help to further bring down the average purchasing cost on their investments. Remember, systematic plans also do this efficiently as higher number of units get credited when prices are lower and vice-versa.

“If you started your STP a year and a half back and still have some funds left in your source scheme (scheme from which investments are paid), you can take out a larger amount from that scheme and invest in your target scheme,” Joshi adds.

“There is no reason to panic. Compared to the strong rally seen in the last two years, this is not such a major correction. Corporate earnings are showing improvement, and this bodes well for the markets,” says Kalpesh Ashar, certified financial planner and registered investment advisor.

What about IPO investments?

Shares of several newly-listed companies have also corrected. The share price of Nykaa is down 21 percent from its highs. However, the stock is still 48 percent higher than its issue price.

Zomato’s IPO was another one in which there was heavy retail investor participation. The stock is down 41 percent from its highs, still 31 percent higher than the issue price.

Investors can take advantage of the market correction to pick up more shares of companies whose business fundamentals haven't changed, and about which they have some basic understanding, especially their business models.

Otherwise, Deepak Jasani, head - retail research at HDFC Securities, says investors should keep a mental stop-loss to avoid losing too much on any IPO.

This might also be a good time to top up your investments as stock prices have corrected

However, Jasani adds that investors should be more wary of IPOs of companies whose business models are not easy to understand.

In the last couple of weeks, shares of Paytm have corrected another 17 percent. The stock is trading at a 57 percent discount to the issue price, which means that if an investor made a minimum application of Rs 12,900 in the IPO, she has already lost Rs 7,353.

Brokerage houses have raised concerns over the strength of the company’s business model to turn profitable.