When the market falls, words like patience and calm don't work as it's human behaviour and tendency that we don't like to see losing money. But this isn't the case when your money grows quickly. When money grows quickly no one questions why my money has grown too fast and certainly no one wants to give up their gains.
Until 10 days back, it was the fear of losing out that saw money flowing into the equity market and today everyone is crying due to a sudden change in sentiments. Yes, there has been an event in the domestic market - budget for 2018-19 has introduced a 10 per cent of long term capital gains (LTCG) tax. While LTCG is a dampener as going ahead it will bring down one's gains but that should not be a huge concern if India maintains its growth and corporate India bounces back quickly. The sharp fall in Indian market is not just domestic event but also due to global weakness. With bond yields rising in US, the risk appetite has reduced among investors which is moving money from equities. US equity market fell as investors grappled with rising bond yields and potentially higher inflation.
So what should investors do?
Stay on sidelines as it would be foolish to try catching a falling knife. Let the market settle and then find good and quality stocks to invest. Companies that are generating positive cash flow should be targeted by investors. One can't always find the bottom but once the noise starts to slow down one can invest 15 to 20 per cent of their fresh flows into the market. They can slowly increase their allocation.
Expert says one should not time the market. But in reality timing the market is crucial. It's not always possible to get the right timing though. Therefore one should have a balance portfolio with a good mix of equity and debt such that an overall portfolio makes a decent return of over 10 to 14 per cent. Similarly and especially for retail investors continuously investing over a long period actually helps to take advantage of market volatility and fluctuations.
The current strategy is to preserve capital and invest in quality once the dust settles. Going ahead investors will have to adapt to volatility in the equity market and invest smartly to make double digit return as completely avoiding equity investment can't be an option due to lack of investment opportunity.