Stock Markets are falling – What to do now?
The stock markets are falling and panic amidst the current situation is completely normal. So here are a few answers to what should be the prudent move now:
“Sensex is down by 3000 points and Nifty has shed close to 900 points in last 5 days. It’s a blood bath going on in markets.” Commented one of our close friends yesterday.
He was panicking a little because he had started investing recently only in the stock markets and had been enjoying until now the bull run by seeing his notional profits on the stock broker app he used. Suddenly, from everything being green, the portfolio had started to turn red as each day was passing and he wanted to book profits along with closing his SIP with the intention of investing later.
Actually, this feeling is not only unique to him, as many investors and traders have been getting this feeling slowly with numerous questions – How much the markets would fall? Should I book some profits? Should I just leave my portfolio untouched? What to do with SIPs? Etc.
So before answering any of these questions, let us first understand the overview of the markets and what exactly is the correction phase of the market:
As it’s a universal phenomenon that nothing can keep on going up only, similar is the case with stock markets also. When there’s a period of really high prices extending over a long tenure, then comes a phase of “correction” wherein the prices of stocks stabilize in line with the long term trends. This correction can be a downfall ranging from 15% - 20% from the upper levels of the markets and if the fall continues beyond 20% then the markets are termed to be entering the bear phase.
So, if we look at the current trends and considering Sensex at 50,000 highs, the market at current levels has corrected by just 6% and this can’t be termed as a bear phase after the spectacular bull run of last many months. Generally these corrections last for few days only or if the bear phase starts, then it may continue for few months. However, in a healthy market, the bear phase is never greater than the bull phase.
Coming back to our old question: what should you do with your investments now?
The answer to this question lies within “Which school of thought do you follow for your investments?” Are you a long term investor looking for a healthy portfolio buildup or you are a trader looking to earn some quick bucks out of the market swings? If it’s the former, then you need not worry as stock markets are always volatile and when observed over a long run, these ups and downs are never a cause of concern. Here’s a chart representing how the NIFTY fell to the levels of 7,500 from making newer highs of 12,500+ in Feb’20 due to the COVID panic and then within a time span of just 10 months we not only saw a recovery, but also newer highs being made each day.
Hence, keeping a long term perspective, such corrections shouldn’t be given much heed. However, a few things which can be done during this time are averaging the stocks at lower prices i.e. buying some of the stocks in lumpsum quantity held in your portfolio which have fallen by substantial degrees but have strong fundamentals or investing some lumpsum amount in already running SIPs to take advantage of lower NAVs. Please remember to not stop the SIPs at any cost or redeem them at low levels as this correction is a short phase only and in the long run it’s the compounding effect which pays off.
What to do if you are a short term investor? There’s no specific answer on what to do in the current situation. However, one can definitely rebalance their portfolio and sell off those stocks which are fundamentally weak, and the upside would take a much longer time than anticipated, whilst keeping the fundamentally sound stocks for a longer duration.
All in all, stock markets are a perfect example of rewarding those with patience and prudence. There can be a lot of panic, negativity and opinions in a bear market, but staying steady in such times reaps maximum rewards.
A small mantra from us to you:
Markets are from “Mars” and Moderation belongs to “Venus” just like men and women. Both opposites, but to create something great, they need to come together.
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By: Anmol Gupta | Isha Garg