You can use the correction phases to build your portfolio with value picks.
Volatility is a basic nature of stock markets. Stock markets are driven by investor sentiments and expectations of corporate earnings. Usually, markets react sharply to negative or positive news developments.
The volatility this year is due to a negative bias. There are many factors that contribute to negative investor sentiments. For example, a persistent high inflation rate (especially the core inflation rate that is driven by basic commodities), rising commodity prices in global markets, slow down in global economy and no visible signs of improvement etc. Global investors who were pumping money into emerging markets are exiting. Large foreign investors are bearish on the global growth potential and expect the global economy to deteriorate.
Since the stock markets are in a sideway movement and not doing very well, equity funds are also not delivering good returns. In fact, most of them delivered negative performance in the last six months and many investors lost money in equities and equity-based funds. According to global stock market analysts, valuations in the domestic markets were over-stretched last year, and that is why the huge correction this year. Some analysts feel the domestic markets will remain in a sideway movement in the short to medium term - in the next six months or so.
Here are some investment options you can explore in volatile market conditions:
Debt mutual funds
Investors can look at higher portfolio allocation to debt-based funds. Debt and liquid mutual funds are offering higher returns due to the tightening of the monetary policy.
Investors willing to take a calculated risk can look at investing in balanced mutual funds. Balanced mutual funds invest a certain percentage of their total corpus in debt instruments and the remaining in equities.
Stocks
Investors with a moderate to high risk appetite and long-term investment horizon - more than one year - can look at investing in blue chip stocks of select sectors.
Many blue chip stocks are trading at attractive valuations in the market. Investors can invest in these sectors based on a careful analysis.
Here are some tips to help you pick stocks with potential:
Volatility is a basic nature of stock markets. Stock markets are driven by investor sentiments and expectations of corporate earnings. Usually, markets react sharply to negative or positive news developments.
The volatility this year is due to a negative bias. There are many factors that contribute to negative investor sentiments. For example, a persistent high inflation rate (especially the core inflation rate that is driven by basic commodities), rising commodity prices in global markets, slow down in global economy and no visible signs of improvement etc. Global investors who were pumping money into emerging markets are exiting. Large foreign investors are bearish on the global growth potential and expect the global economy to deteriorate.
Since the stock markets are in a sideway movement and not doing very well, equity funds are also not delivering good returns. In fact, most of them delivered negative performance in the last six months and many investors lost money in equities and equity-based funds. According to global stock market analysts, valuations in the domestic markets were over-stretched last year, and that is why the huge correction this year. Some analysts feel the domestic markets will remain in a sideway movement in the short to medium term - in the next six months or so.
Here are some investment options you can explore in volatile market conditions:
Debt mutual funds
Investors can look at higher portfolio allocation to debt-based funds. Debt and liquid mutual funds are offering higher returns due to the tightening of the monetary policy.
Investors willing to take a calculated risk can look at investing in balanced mutual funds. Balanced mutual funds invest a certain percentage of their total corpus in debt instruments and the remaining in equities.
Stocks
Investors with a moderate to high risk appetite and long-term investment horizon - more than one year - can look at investing in blue chip stocks of select sectors.
Many blue chip stocks are trading at attractive valuations in the market. Investors can invest in these sectors based on a careful analysis.
Here are some tips to help you pick stocks with potential:
- Investment objective: Identify fundamentally-good stocks based on your investment objectives.
- Limit portfolio: Keep your portfolio limited to 6-8 stocks only. Keep your portfolio diversified with stocks from different sectors.
- Analyse before exiting: Do not panic during volatile market moves. Use these market moves to enter into your identified scrips or exit from your positions slowly and gradually. Build your portfolio slowly by accumulating stocks in small quantities at every buying opportunity - dip in the market. Don't hurry and invest your entire corpus at one go.
- Profit target: Always have profit/loss target in mind. Once the profit/loss target is achieved, analyse your investment and decide on booking profits or loss, or revising the target, based on a proper analysis. Often, investors fall into a trap by not booking profits or cutting losses once the target is achieved.
- Risk capital: Always invest your risk capital in the markets. It is not advisable to borrow to invest in the stock markets.
