India's Indian equity benchmarks has seen a sharp correction in the last few days, following the Reserve Bank of India's (RBI) interest rate hike – as a measure to control high inflation.
So, which stocks should you back as markets continue falling? Are there 'safe' sectors you should watch out for?
The Quint spoke to Deepanshu Mohan, Associate Professor and Director, Centre for New Economics Studies at Jindal School of Liberal Arts and Humanities, OP Jindal Global University, and senior journalist tracking India Inc Madhavan Narayanan, to answer all your questions.
Should I stop trading/investing for the next few days?
According to experts, unless your risk appetite is very high, this would not be the time to invest in stock market.
If an investor is looking to put money in the stock market for long-term investment right now, then it is best to act knowing that there's a high risk factor involved.
Economist Deepanshu Mohan explains that – "What we are witnessing now, is called a period of correction. It is a period when there is a sudden spike upwards or downwards in the stock market behaviour. Take for example, when someone is moody, that is not the time you have a serious conversation with them. You would wait for their mood to stabilise and then have a serious conversation with them. The same caution should be exercised with stock market as well."
But, why is the market falling?
This is a heightened period of economic and political uncertainty, across the globe, being fuelled by three events that have set a chain reaction, experts say:
Hangover of COVID-19 pandemic situation
Russia-Ukraine war creating anxieties in the commodities market
Spiralling inflation across the world
In India, the market has been bullish for many years. The behaviour of stock market has been more optimistic than the macro-economic indicators – like high unemployment– has been reflecting. The indicators point that the market should ideally not have a hyper-optimistic scenario for future. This is also why we have many IPOs, with companies coming forward to raising capital from the market. This is a time to be cautious as an investor.Deepanshu Mohan
What are the golden rules I should keep in mind right now?
Senior journalist Madhavan Narayanan says that the main rule right now is to know your profile, and take decisions accordingly. He added that – "Stock market booms are like teenage crushes. At that time they appear to be much bigger than they are in the long-term."
"The same person can be a trader, a short-term investor, and a long-term investor. But do not get the fires crossed. It is like a person playing three roles in the same movie. This is like T20, One Days, and Tests. Understanding your portfolio will help you to pivot depending on the market situation. Suddenly if it goes up, beyond your expectation, you may want to sell. But if the value goes down, you want to shift it as a long-term investment."
Narayanan also added that assessing a person's risk appetite is also a key rule.
"If something is making you sleepless at night, it is a complete no – regardless of what type of investor you are. Take steps to assess your comfort level, and take decisions accordingly. While it helps talking to people to assess your risk, as a sounding board, one should also understand that this appetite differs from person to person."
Mohan, on the other hand, says that investors should keep the following in mind:
Set some goals: Figure out the purpose and intention behind the investment. Do you want to take money from the market and use it elsewhere? Is that money going to be used for further investment or savings?
Look for trends: As an economist, Mohan says that people should not just look at statements but also market trends. For example, if you are looking at the automobile markets, there is a positive trend towards green/eco-cars globally. So if you are investing in carbon-emitting vehicles, then that is something to watch out for.
Beware of rumours: Do not buy or sell because of rumours floating in the market. Avoid risky, low-price stocks.
Should investors back the performers who have been consistent?
This depends on who you ask. But Narayanan says that 'time horizon' should be kept in mind before making the decision.
"There are some shares that are portfolio shares – you buy them and keep it with you forever. But this is an idealistic situation. In these times, one should look at the time horizon before making the decision to buy or sell the consistent performance . This is very important, but often ignored aspect of investing."
Explaining with an example, Narayanan says:
"If you had purchased shares of a typewriting company in 1970s, by the 1990s, the market for the same has vanished. Some products go out of fashion, even if companies are very good. This needs to be kept in mind while backing stocks that have been good performers in the past."
What are the kind of stocks (or sectors) one should look out for when the market is down?
There are no safe sectors in the market at the moment, says Mohan.
"The IT, telecom, and pharmaceutical sectors, along with automobiles in India have been the safe/better performing sectors in 90s and much of the 2000s. But they are no longer the better performing even under difficult circumstances," he explains.
Narayanan, on the other hand, said that there is a difference between safe and great shares – but these are some sectors that are considered safe, he says:
Cloud-based software companies
What are some options for people to invest that's not the stock market?
Both experts agree that going for conservative hybrid funds is the best bet – especially for those who are investors in the early years of their career.
"Within mutual funds, the conservative hybrid funds is your best bet. It provides protection over inflation for a longer period," says Narayanan.
Mohan adds that the traditional fixed deposits and recurring deposits are no longer working as a desired form of investment.
"If you have an inflation of 7 or 8 percent, you run the risk of not getting anything as a return. The youngsters are looking for instant gratification. The SIP or the Systemic Investment Plan provides guaranteed returns," Mohan says.