Investment Strategy: Navigating the Volatile Equity Markets

After registering fresh lifetime highs in the early week of January 2024, benchmark indices such as the S&P BSE Sensex and the NSE Nifty have been experiencing a dip. 

So, is it time for investors to review their mutual fund investment roadmap? In the past two years, there has been a considerable influx of funds into small-cap and mid-cap funds through mutual funds, while the flow into large-cap funds has been relatively restricted.

However, experts think that churn happens in large-cap stocks as the margin of safety is probably higher in this space than in mid-cap and small-cap stocks.

Analysts state that usually, January has been a tough time for the equity market on 80% of occasions. For any retail investor, if their goals are long-term in nature, then they are not required to worry about short-term fluctuations in the market.

As per these analysts, most of these could be a buying opportunity for a long-term investor who is required to stick to asset allocation. In the case of a short-term investor, the strategy should be slightly more careful, considering stock markets are fairly priced, specifically in the small-cap and mid-cap spaces.

In the near term or in cases where the goals are near, an investor should ideally start moving out of equity and into fixed income to ensure that when the financial goals are nearing, they have less volatility in their portfolio, point out experts.

The market experiencing a dip of 4% within a week is significant. However, the decision for investors to modify their mutual fund investment strategy depends on various factors, such as their financial objectives, risk appetite, and current investment portfolios.

As per experts, those investing through the systematic investment plan (SIP) mode shouldn’t alter their approach. The investment strategy enables investors to gain from rupee-cost averaging over an extended period.

It is important to take stock that SIPs don’t assure returns. However, the anticipation is that stock markets will generally rise in the long run, proving advantageous for SIP investors. On the contrary, lump-sum investors could adopt a cautious approach given the current market scenarios.