Here’s how to respond to the stock market now, scientifically
- Vipin Khandelwal
- 4 days ago
- 3 min read
The first message I got yesterday was "In this stock market rout, do we need to do anything?" I went to quickly check what happened to the markets that the word rout was used.
The markets at one point were down close to 5% yesterday and ended up closing at 3.24%.
This cannot be called a rout. Ok, may be for a day's reaction. But then this is what you expect from the market - to be volatile, to go up and down, to swing us on the pendulum of greed and fear.
It's par for the course.
If the market does not exhibit those characteristics I tend to be scared, not otherwise. Just to put things in perspective, let's zoom out.
This is how the 5 year chart of Nifty 50 is. Pretty green right.
Markets have been correct since Oct 2024 and with yesterday's 'rout', we have, in effect reversed about 14 months.
From peak to yesterday's close of Nifty 50, we are down 18.3%. That's a very good correction (not to sound sadist there), so far. And I am sure a lot of investors have now become smart to know and remind themselves the great saying.
Be fearful when others are greedy and greedy when others are fearful.
Exactly the reason for the message yesterday.
Should I buy or sell?
I will respond to that with a little more data. Below is our model response for what should we do now - buy or sell?
The model after a very, very long time has become overweight equity. I think we would not disagree that it is better to get your exposure to growth oriented assets.
Be Greedy!
For those who are scared
Given our tendency to react irrationally, this can trigger unwanted responses that can harm your long term plan and the portfolio. The worst of them is to sell now and convert your temporary losses into permanent ones.
Remember, you don’t have to quit; stay put.
Yes, markets can go down further too. This is natural. It’s just that you haven’t experienced it before.
Now, you have been reading and listening to all the gurus for ages. It is time to follow their sage advice now – to respond calmly and rationally.
In my view, here is the most scientific response to the current market scenario.
Go back to your financial and investment plan. If you didn’t have one, build now. You will amazed at the clarity it brings to your investment decisions.
Check your required asset allocation (including all assets, not just stocks or MFs)
Now, check your current asset allocation (including all assets & investments)
Is there a significant deviation, say +/- 10%.
If yes, rebalance. Move investments to the deficient investment to bring it to the required allocation.
If no, then just let it be. Read something, learn, watch a movie, go for a trek or just walk.
Rebalancing example – In the current scenario, if your fixed income allocation (PPF, EPF, Debt funds) is looking higher than desired, then move money from fixed income to equity (via stocks or MFs). And vice versa.
I would say this is the most scientific response that you can give to the current market scenario.
Believe it or not, this is also the most rational one with respect to investment management. No emotions involved.
This is the same thing I sent as response to the message.
Still feeling uncomfortable? Then speak to your advisor.
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