Sensex, Nifty down over 2% in five days; here's what investors can do to protect their portfolios

• Sensex fell 1,686 points and Nifty 50 dropped 568 points over the past week
• Diversification, rebalancing, and asset allocation build resilient portfolios.
• Portfolios should align with personal goals, not just market forecasts

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The Sensex and Nifty finally broke the fall on January 22 to trade around 0.5 percent higher at around 11 am. In the past 5 days, the equity benchmarks have traded lower on rising US-EU tensions over Greenland, sparking fear of renewed trade war.

The Sensex lost around 1.69 percent and the Nifty 1.3 percent in the last five days. The pullback is a reminder that gains can vanish quickly when sentiment turns cautious, even after a strong rally.

For investors, the lesson is clear: portfolios built only for bull markets struggle during downturns. Diversifying assets, rebalancing regularly, keeping costs low, and staying calm through fluctuations help protect capital, recover faster, and achieve steady growth across market cycles.

"I assume 20–30 percent equity drawdowns will occur multiple times over a long investing lifetime and design liquidity so I am never forced to sell at the wrong time. Holding two to three years of expenses in low-volatility assets provides both financial and emotional stability during downturns," Paramdeep Singh, financial services veteran and founder of Long Tail Venture, said.

Asset allocation matters far more than stock selection and diversification only works when assets behave differently under stress, not just during bull markets.

Shubham Gupta, CFA and co-founder of Growthvine Capital, said, "To build a portfolio that survives market cycles, start with a clear asset allocation across equity, debt, gold, and global exposure." Diversification comes with a trade-off, something will always underperform, and it’s important to be comfortable with that, because different assets lead in different phases of the cycle. Investors need to understand that they cannot be fully invested in the "best performing" asset class at all times, he said.

If you are investing in stocks directly, focus on strong companies with healthy balance sheets and steady cash flows. Avoid chasing hot themes or narratives, as they often look great in bull markets but can break sharply during downturns, he said.

"One of the most important principles to build resilient portfolios lies in rebalancing. Rebalancing is the most counterintuitive part of portfolio management, but it’s what keeps the portfolio rational and aligned to long-term goals," Gupta said. Rebalancing prevents over-concentration in what’s “working” and gradually adds exposure to assets or themes that are out of favour.

Singh said, “I rebalance when allocations drift 5–10 percent from target, which enforces discipline and removes emotion from decision-making. Over full cycles, this process compounds capital more reliably than chasing short-term performance.”

Portfolios should be built around personal goals, time horizons and cash-flow needs, not market forecasts.

“Low-conviction investments are the first ones investors exit during volatility, while high-conviction allocations are the ones you can hold, or even add to. when markets go south,” said Gupta.

One must also remember that what works for one investor may not suit another, so it is essential to do your own research, understand the risks involved, and review assumptions periodically.