Invest according to your risk-return objectives and look at short-term and ultra-short term debt funds, along with staggered investments in equities
India's bourses that had recently seen lifetime highs appear set for a major round of corrections. Expert's opinion is divided as to the level of the fall, but various economic factors make some sort of correction in the stock markets inevitable.
The good news is that small investors have various options to benefit from any corrections in the market.
"There could be a correction in the stock markets of some 10% or even more with a six to nine month timeframe in mind," said Sahil Kapoor, chief market strategist, Edelweiss Investment Research,
Kaustubh Belapurkar, director, manager research, Morningstar Investment Adviser India agreed that there are certainly some near–term challenges for the Indian equity markets to face, though , predicting stock markets is difficult.
But this challenging scenario notwithstanding, there are certain constructive outcomes for the small investor even if the market slides.
"Most of the bad news (that can negatively affect markets) is getting priced in, which makes current levels attractive for investors," said Hemang Jani, Head - Advisory, Sharekhan by BNP Paribas.
Allot investments according to risk-return objectives
Investors should remember their risk-return objectives and accordingly allot their investments. Fixed income forms an important pillar of an investor's portfolio. Not only does it provide liquidity towards short-term goals, it also helps diversify the overall risk of the portfolio. They are a viable option in a falling equity market portfolio.
"Investors at this point should look at allocating fixed income investments towards ultra-short duration and short-duration funds," said Belapurkar.
"Investments may be made in dynamic debt funds," said V K Vijayakumar Chief Investment Strategist at Geojit Financial Services. While debt funds will not offer attractive returns in a rising interest rate scenario, as presently, dynamic debt funds are a good option since they actively alter allocations between short and long-term bonds .
Investors can also look at parking any excess cash in liquid MFs, said Kapoor.
"There is opportunity in investing in AAA Fixed Maturity Plans (yield around 9% per annum) given the attractive interest rates available in the market," said Jani. FMPs are closed ended MF schemes that invest in debt instruments.
Don't avoid equity entirely
It's not just debt or fixed income that investor need to look at. Even within stock markets there are pickings to be had in a declining market.
"Even in correcting markets, a strategy of purchasing, say 5% cent of your investment portfolio every fortnight, works well in adjusting risk and providing the needed time to capture better absolute entry points," said Kapoor, when asked if investors should avoid the stock markets.
Some sectors investors could look at include recommends are domestic driven, small ticket consumption sectors like appliances, two-wheelers and dairy sector appear attractive, said Kapoor.
According to Vijaykumar, private sector banks, autos, pharma and certain IT stocks can be considered. "Even mid- and small-caps are slowly becoming attractive, though I would advice investments in mid- and small-caps through MFs, preferably through Systematic Investment Plans (SIPs)," he said.
Agreeing that mid- and small-cap stocks still offer great wealth creation opportunities from a long-term perspective, Belapurkar said: "Given the stretched valuations in these segments, investors need to be prepared to stay invested for a period ranging from at least seven to10 years to make meaningful returns from these sectors.
Within equity funds, it is advisable to stick to large-cap funds, said Mohit Gang, co-founder and CEO, moneyfront.in, online mutual fund platform.
"It is also important to continue with your ongoing SIPs. If you stop your SIP now and and restart when the market moves up, you will end up buying when the market is expensive,'' he said.
INVESTING IN DIFFICULT MARKETS
- Look at fixed income investments such as ultra and short-term and liquid funds
- Within equity funds prefer large-cap funds
- In correcting markets purchase 5% of your equity portfolio every fortnight
- Can look at re-entering small and mid-cap stocks, through SIPs in MF and stay invested for 7 to 10 years
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