A dip in the select set of individual stocks or overall markets to an extent of 10-20% is termed as Market Correction. Corrections grab the attention of every stock market investor or a mutual fund investor. Many investors assume that Mutual funds have only Equity investments. This is yet another reason to fear corrections.
Since March 2022, the Indian markets have actually started correcting, due to various reasons such as -
1. High inflationary pressure- US Federal Reserve will tighten the liquidity and hike interest rates. At 8.6 %, the US inflation is at a 40-year high.
2. Hawkish monetary policy.
3. Supply constraints given our domestic consumption. Continuing Geo-political tensions. This resulted in volatile Crude prices.
4. Foreign Portfolio investors continue to withdraw from Indian equity markets and until date its Rs. 14,000 plus crores in this June 2022. With this, the net outflow by foreign portfolio investors (FPIs) from equities reached Rs 1.81 lakh crore so far in 2022. Apart from equities, FPIs withdrew a net Rs 600 crore from the Debt markets too from February 2022.
5. Jump in Covid cases in China.
Now what should you do as an investor?
There are few factors that investors should keep in mind during market corrections.
1. Think of only the controllable. Don't panic and just focus on your timelines:
Firstly, manage your emotions. Don't invest in stocks or Equity Mutual funds with your emotions. Businesses need time to stabilize, so don’t fear or become greedy while investing. Working with a financial goal in mind, so that you can control the controllable elements like Goal period, Allocation, & etc and not bet on markets in a shorter period.
2. Use the opportunity if you have the money power and long-term horizon:
There is an opportunity to invest in corrections. Either you can stagger and invest systematically or invest in lumpsum to balance your portfolio if your investment horizon is relatively high. If its Direct Equity, Investors should be focused on stocks with strong relative strength lines and ones that are strongly resisting the downtrend. Be fearful when others are greedy and greedy when others are fearful, as Warren Buffet says.
So, staying calm, having a sound financial plan, focussing on Asset allocation, creating and maintaining a well-diversified investment portfolio are the best ways to manage the finances to build long term Wealth creation.
Disclaimer - Investments are subject to markets conditions & might vary from one person to another. No part of this article shall be construed as advice. To know more, please contact us.