The year 2018, after having started on a positive note, witnessed a sharp correction in stock indices post the Union Budget. The Nifty slipped by around 1,000 points from its all-time high which stood at around 11,000 nearly two months ago. On the other hand, Sensex slipped by more than 3,000 points from its all-time high. Over the last two months, markets were down approximately 10 percent, said Rahul Jain – Head of Personal Wealth Advisory, Edelweiss Wealth Management, in a recent interview with Moneycontrol.
He spoke about about how an investor should ride out this market volatility and review one’s portfolio during market corrections.
Here are the key takeaways from Jain's interview:
Rebalancing of portfolio
A market correction is a normal phenomenon, which usually happens at regular intervals. Such corrections in structural bull markets are good as it helps to get away with froth from the stock market. Those who are invested through SIP mode should continue under the current scenario. If an investor is planning to pump in more capital then he/she should ideally wait for a month as markets could witness a further correction and NIFTY may lower to 9,600 points. During this period investors can buy more stocks which can be an ideal time to increase equity exposure towards one’s portfolio.
Debt holding in a portfolio
If you have fresh investments coming in and your investment horizon is less than one year then it will be a good idea to invest in debt instrument at this point in time. Invest in debt when markets are highly volatile. However, if you already have invested in debt then you should not increase the size of the portfolio by unnecessarily investing more in debt securities.
Favoured asset class
Equity remains the favoured asset class among investors. Even if we talk about high net-worth individual (HNI) clients, they are more inclined towards investing in equities other than real estate or any financial assets. However, while constructing one’s portfolio one should always invest 5-10% in gold. The yellow metal has an inverse characteristic compared to equities. So, when equities go down, gold performs better. This way one can have some sort of stability in one’s portfolio while evaluating average returns during the downturn of markets.
One should not worry about the current scenario and should remain invested as markets could turn out to be bullish in FY19-20. One can consider steel and infra sector as a good option for making investments in coming two months.
Selection of large-caps, mid-caps or small-caps is a crucial thing because it is very important for an investor to first understand their risk profile, that is how much risk an investor can take and accordingly, they should invest in the financial markets.