'Regardless of whether you invest Rs 100 or Rs 1 crore per month, risk is inevitable.'
'Positive returns at the end of the year can never be guaranteed.'
'This is a fundamental truth every SIP investor must grasp.'
Akshay Chinchalkar, head of research, Axis Securities, shares some wisdom mantras for investors to navigate through the turbulence that the Indian equity markets are going through.
Interviewer: Prasanna D Zore/Rediff.com
How To Pick Winners:
The current market scenario is a tale of contrasting performances between the Nifty, small-caps, and mid-caps.
If you look at the broader benchmarks, particularly the NSE 500, less than 10% of stocks are trading above their 50-day and 100-day moving averages. This indicates that the broader market is in poor health (the more the number of stocks trading below these averages, the relatively poorer the state of equity markets) but it also suggests that the market may be oversold, which could lead to a pause in selling or even a potential bounce.
Here's what this means for investors:
Bulk of the Pain is Behind You: The fact that most stocks are already trading below their key moving averages suggests that the majority of the market decline has already occurred.
While there could still be more downside, panic selling at this stage would be a mistake, especially since the average stock is already down 30% to 40%.
Hold On and Identify Relative Outperformers: If your portfolio has declined by 30% to 40%, selling now is not advisable.
Instead, concentrate on identifying stocks that have outperformed the benchmark, such as the Nifty 50 or Nifty 500. These are stocks that have dropped less than the broader market, indicating their resilience.
Three Key Criteria for Stock Selection:
Relative Outperformance: Look for stocks that have fallen less than the benchmark. These stocks are likely to outperform when the market recovers.
Earnings Visibility: Focus on stocks with strong earnings visibility. Companies with solid fundamentals are more likely to weather market volatility and recover faster.
Government Spending Focus: Prioritise stocks in sectors where the government has clearly outlined spending priorities. These sectors are likely to benefit from policy support and increased investment.
Averaging Down: If you identify stocks that meet these three criteria, consider averaging down -- buying more shares to lower your average cost per share. This strategy can be effective if you believe in the long-term potential of these stocks and expect a market recovery.
Potential for Outperformance: Stocks that have fallen less than the benchmark during the downturn have the potential to outperform when the market recovers.
For example, if the Nifty 500 falls another 5%, a stock that doesn't fall as much as the index is likely to outperform when the market starts rising.
To summarise, while the market may still face challenges, the bulk of the decline is likely behind us. Instead of panicking, investors should focus on identifying resilient stocks with strong fundamentals and government support. By doing so, they can position themselves to benefit from a potential market recovery.
Advice for SIP Investors
- The primary purpose of a SIP is to avoid timing the market.
Investors should focus on high-quality funds that have performed consistently across different market cycles.
Looking only at the top-performing funds of the last five years may not be ideal since all funds may have benefited from a broad market rally. - Investors should evaluate funds that have performed well during prolonged corrections, not just sharp declines followed by quick recoveries.
Some corrections take 15 to 18 months to bottom out before a steady rise begins.<br?Funds that have weathered such periods, falling less than the market and recovering efficiently, should be prioritised. - Time correction -- when markets stagnate for long periods, it tends to test investor patience more than the typical price correction.
Many investors assume markets always bounce back within a few months, based on recent trends. However, history shows prolonged downturns, such as in 2008-2009 or 2001-2002, where markets fell 30% to 40% and took many months to recover. - Investors should, therefore, seek funds that have proven resilience over extended periods, not just those that have performed well in short-term market recoveries.
A Guide for SIP and Self-Researching Retail Investors
If you are investing through SIPs, continue doing so.
The whole point of SIPs is to invest a fixed amount regularly, understanding that markets are inherently volatile. We all want markets to rise consistently, but that's not how they work.
Investing involves risk, and while returns are never guaranteed, risk is 100% guaranteed all the time.
No matter how much you invest each month, risk is unavoidable, and positive returns are never guaranteed.
The true strength of SIPs lies in cost averaging, which helps smooth out market fluctuations, combat inflation, and build wealth consistently over time.
Retail investors who choose to invest directly in stocks, rather than relying on fund managers, must remember that perfect market timing is impossible -- no one can consistently catch the last 1% on the way down or the final 1% on the way up.
With markets at a crucial juncture and technical support levels under close watch, it's essential to recognise that market movements are inherently unpredictable.
A disciplined approach, grounded in research and risk management, is key to navigating volatility.
Keep Realistic Expectations
Avoid aggressive bets and stocks where you expect steady 2% to 3% monthly gains -- many investors assume such returns are easy, but the reality is much different.
Even compounding at 20% to 30% annually over decades can lead to significant wealth creation. Unrealistic expectations often lead to disappointment.
If you are achieving 20% to 25% annual returns, you're already ahead of the curve.
Instead, focus on sectors poised for long-term growth, especially those aligned with government initiatives like India's Vision 2047 and Viksit Bharat. These areas have strong structural tailwinds and the potential for sustainable expansion over time.
Sectors to Watch in Case of a Market Rebound
If the market holds 22,500 to 22,700 and begins a rally -- whether from here or after testing lower levels -- the Nifty is likely to make a new all-time high, possibly in 2025 or 2026.
Key sectors that could drive this rally:
- Banking: A heavyweight in the Nifty (34% weightage).
- IT: Likely to benefit if global conditions stabilise.
- FMCG: A defensive sector that typically performs well in uncertain conditions.
Market conditions can change, so flexibility is essential. However, historical trends suggest these sectors could be key players in the next market uptrend, whenever it gets underway.
Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article to influence the opinion or behaviour of the investors/recipients.
Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.
© 2025