What to do during an unpredictable share market situation

During the first week of February 2018, the equity market in India suddenly started going down very rapidly. Many investors panicked. Many of them were confused. They didn't know what to do. This article tries to provide a direction to those investors in the present uncertain times.

Since 2014, the Indian share market has been showing a consistent upward movement. On 16th May, 2014, after the electoral victory of BJP-led NDA, the Sensex jumped a staggering 1,470.03 points or 6.14% at the day's high of 25,375.63. On 16th January, 2018, equity markets went past yet another milestone as Sensex went past 35,000-mark for the first time in history. However, since 1st February, 2018, the equity indices have started going down. During the first week of February, 2018, it was a bloodbath in the market. The budget proposal and America's share market are two major reasons behind this bloodbath.

Now, this sudden downturn of the market has made many Indian investors confused. What should they do? Should they hold their scripts? Should they sell their units of equity mutual funds? This article is trying to find an answer to these questions.

Examine your holdings

When the equity market was moving forward, many investors purchased mid-cap and small-cap stocks. Many investors invested in mid-cap and small-cap equity funds. The mid-cap and small-cap indices had been giving much better return than the broader indices, i.e., Sensex and Nifty. It is quite natural that at the time of downfall, these mid-cap and small-cap stock will start falling more rapidly. Under these circumstances, the common investors must examine their holdings, especially the mid-cap and small-cap stocks, and at least partially sell-off these mid-cap and small-cap stocks/units of mid-cap and small-cap funds. They should put the money in time-tested blue-chip stocks or funds. However, the investors must not resort to panic selling at this juncture without proper examination of their holdings.

Avoid thematic or sectoral investment at this juncture

The Budget proposal has only been tabled, it is not yet approved. There may be some changes before it is passed. Thereafter, detailed Notifications will be issued. Till such time, the complete picture would not emerge. During this uncertain period, common investors without complete knowledge, should not invest in thematic equity stocks/funds. They should wait and watch before taking any decision.

Don't discontinue your SIPs now

Many common investors would now plan to discontinue the SIPs because of the volatility and uncertainty regarding the future movement of the market. The financial experts strongly discourage such action. SIPs must continue under the present circumstances. If the market goes down and the investor discontinues the SIP at this stage, he/she would not be able to take advantage of lower unit cost. So, please don't discontinue SIPs in the mutual funds at this stage.

Start buying in tranches

Some investors had discontinued investment earlier due to the high valuation of the market. They were waiting for the market coming down from the peak. This downward journey of the market would give them the opportunity to enter the market. The financial experts advise such investors to buy in tranches. They should not invest lump sum at this stage; instead, they must stagger it.

Concluding the discussion

The market is presently very uncertain. The experts can't tell whether the market will again resume the upward journey or start going down rapidly. During these uncertain times, the investors must exercise caution. They should not enter the market in a hurry. At the same time, they should not resort to panic selling. They must continue their SIPs and gradually shift from mid-cap/small-cap stocks/funds to blue-chip stocks/funds.

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