As I write this article on the 4th of July, the NIFTY50 closed at 1583.35, which is a 10.16% fall YTD. The Russia-Ukraine war, the recent supply chain disruption, and the central bank’s aggressive measures to counter inflation were not things that investors predicted 6-7 months ago, but as they happened, the market reacted to them and discounted the available information.
According to the analyst, the market will remain choppy for the rest of the year as there is no foreseeable de-escalation between Russia and Ukraine, rising bond yields, high inflation, and adding cheery to the cake aggressive selling by FIIs, a rise in crude oil price and appreciating USD.
Not only in India but the Global market has corrected significantly if you look at US Benchmark; S&P 500 has corrected around 20% and NASDAQ has corrected around 30% YTD. This is not the first time that the world has experienced a war nor has the market corrected it for the first time. If we observe closely on an average during wars market has corrected around 10-15% post-war it has recovered by 20-25% in the six months.
What should we do?
Any person with a rational mind (keeping aside the emotional bias) would suggest one thing Don’t Panic! A correction in the market is a window to new opportunity and those who will not get swayed by his/her emotions will sail through the tide, however bumpy it might be.
Said that here are 5 successful tips for you:
Investing requires patience, dedication, discipline, and the capacity for self-advocacy. When the market becomes volatile, people tend to panic, become swayed by what they read or hear, and end up making rash decisions.
Buy the Dip, whose dip?
You might have heard a lot about buying the dip and there are some interesting memes suggesting as the investors buy the dip market creates a new dip and it follows, I wouldn’t disagree with this suggestion but more importantly, one important question that needs to be answered is which or whose dip to buy? There are more than 5000 stocks in the market and during the market correction majority of the stocks appear to be on freefall, so which one to catch? The answer is simply to pick the one which is good in quality, in short, buy quality stocks and not just any stocks by quality I mean companies with good fundamentals, profitable businesses with potential future. If you know about fundamental analysis, I am sure you will be able to pick up some good apples which are really healthy.
Say Goodbye! to low-quality stocks:
This is quite straight, sell stocks that are fundamentally weak, declining sales, unprofitable businesses with no foreseeable future, during the bull run when everything appears to be rosy even those stocks will give you bumper returns but at the time of correction, they will have the hardest fall. So, it’s better to get rid of them, if not now, then when?
Invest in a staggered manner rather than in lump sum:
If you have surplus funds or you are planning to start investment fresh, it is suggested to do it in a phased manner maybe, it can be daily, weekly or monthly, investing in tranches would be better than investing in one go as you will be able to take advantage of market volatility.
A systematic Investment Plan (SIP) or Systematic Transfer Plan (STP) can be an effective tool for investing in this market.
Review your asset allocation and diversify:
As an investor, your portfolio should constitute not only equities but a mix of different asset classes, different asset displays a different level of volatility during uncertain times as compared to equities debt instruments are less volatile, and are relatively stable, further gold tends to perform well during macro-economic volatility. In short meaningful rebalancing and risk management strategies can be helpful in such times.
Take advantage of tax harvesting:
Capital Gains are profits made from the sale of stocks or mutual funds and are taxed according to capital gains regulations. By utilizing the strategy known as “tax-loss harvesting,” a decline in the stock market can be a great chance to boost your investment’s post-tax returns.
It is the practice of selling mutual funds or stocks at a loss to accumulate a capital loss. This capital loss can then be used to offset capital gains from other investments, lowering your tax liability and boosting your investments’ after-tax returns.
Towards the end of the fiscal year, that is, in February and March, investors often use the tax-loss harvesting technique. However, since this is not an absolute rule, the technique can be applied at any point in the financial year. A market crash is an excellent time to book a capital loss by selling some of your portfolio’s underperforming mutual funds or stocks and replacing them with potentially better-performing investments.
Investors can also benefit from tax-loss harvesting when rebalancing their portfolios. In addition to enhancing the asset allocation mix of your investment portfolio, this can significantly lower your annual tax obligation.
Get in touch with your financial planner or advisor, who can give you the right advice if you’re unsure of what to do. It’s better to take no action than to take action that has serious consequences.
Written by: Suraj Kar
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