The ongoing correction in the stock market has caused the benchmark indices to drop by over 12% from their highs in September. Investors are feeling unsettled and may be considering making hasty decisions. So, what should they do next?
According to Sunil Subramaniam, a former managing director of an asset management company, investors who have bought shares early in the price rise cycle and are currently in profit should consider booking their profits. He also advised against making fresh purchases, especially with the upcoming Budget and RBI policy on the horizon.
Deepak Jasani, an analyst, suggests that investors with a long-term horizon of 5, 7, or 10 years should stay invested, as it may be difficult to time the market to exit and re-enter. However, those with a shorter horizon of 6-18 months could consider taking some profits and raising cash, as the outlook for the first half of the year is not very optimistic.
Experts have observed that investors have been chasing after thematic and new-age stocks without giving much thought to valuations. Despite the recent correction, valuations of midcap stocks still seem stretched, while the earnings turnaround for largecaps is not yet visible, leaving room for further downside.
G Chokkalingam, Founder and MD of Equinomics Research, advised investors to look at the PEG ratio and see if the companies’ profit growth has been in line with the price to earnings multiples. If the PE ratio is high but the profit growth is not substantial, it may be time to sell.
In terms of investment strategies, Subramaniam suggested that new investors should avoid direct investing and opt for mutual fund SIPs to benefit from rupee cost averaging. Existing mutual fund investors can continue their SIPs. He also recommended large and flexi-cap funds as better bets, especially for new investors.
Overall, the direction of the market will be influenced by various factors such as the upcoming Budget, RBI policy action, the Federal Reserve rate decision, earnings reports, and geopolitical tensions. In such a volatile environment, it is essential for investors to stay informed and make decisions based on their risk tolerance and investment horizon.
