Indian stock market: Is it time to exit the stock market? EXPLAINED

Indian stock market: After climbing to a record high on 26th September 2024, the frontline indices of the Indian stock market have remained under the sell-off heat. In the last five months, the Nifty 50 index has corrected from a record high of 26,277 to a 22,124 mark, logging 4,153 points or around a 16 per cent dip from the record high. The BSE Sensex ended at 73,198 on Friday last week, 12,780 points or around 15 per cent lower than the record high of 85,978. Likewise, the Bank Nifty index finished at 48,344 on Friday, 6,123 points or 11.25 per cent lower than the record high of 54,467.

Selling in the broader market is more profound as the BSE Mid-cap index has nosedived over 22 per cent against its record high, while the BSE Small-cap index crashed around 25.50 per cent from its lifetime high. So, at this juncture, when investors have lost around ₹94 lakh crore in the Indian equity market in the last five months, a retail investor might think about whether the time is opportune for exiting the stock market for a while or accumulating more via discounted shopping.

Is it time to exit the stock market?

On whether one should exit the stock market amid high volatility, Anshul Jain, Head of Research at Lakshmishree Investment and Securities, said, “When there is a challenge, there is an opportunity because genius doesn’t do different things; they do things differently. Amid the bloodbath in the stock market, one needs to change one’s investment strategy because a volatile market is not conducive to intraday trading. When the market is volatile, it’s time to become an investor and save money. Trading is advised when the market is in a bull trend or a bear trend. In a volatile market, one should invest in cash and maintain strong stop loss after taking any position.”

Echoing Anshul Jain’s views, Vivek Sharma, Investments Head at Estee Advisors, said, “Markets deliver asymmetric returns. There can be long periods of stagnation followed by short bursts of hyper-performance that, on average, drive returns. Missing these bursts while trying to time your entry or exit can be costly. For example, from 2019 to 2023, markets moved through cycles and delivered an average return of 18%. However, had you missed the three best-performing months in those five years, your returns would have fallen to -5%.”

Is it time to invest in the stock market?

Advising mid and long-term investors to take advantage of a current stock market crash, Akriti Mehrotra, Research Analyst at StoxBox, said, “The market has witnessed a sharp fall in the past few trading sessions, providing a perfect opportunity to increase the stake in equity markets. But before accumulating in the stocks, the investors should closely monitor several triggers and potential risks in the market.”

On selecting stocks in a volatile market, the StoxBox expert said, “A company’s fundamentals, like earnings growth, debt levels, and competitive positioning, are key to assessing whether individual stocks or sectors can withstand economic and global pressure. Companies with strong balance sheets, sustainable earnings growth, and a competitive edge in their sector are more likely to survive the market volatility and offer attractive returns from a long-term perspective.”

Stock market strategy

Unveiling stock market strategy in the current scenario, Gaurav Goel, Founder & Director at Fynocrat Technologies, said, “Even in a declining market, not all stocks are undervalued. Investors should focus on PE ratios and earnings potential before accumulating positions. Instead of unthinkingly investing in the overall market, identifying individual stocks with strong fundamentals trading at reasonable valuations is a better approach. Stocks with PE ratios between 10 and 15 may offer better value, but thorough research is essential.”

40-30-30 rule

Advising stock market investors to follow the 40-30-30 rule while investing in a bear-hit market, Gaurav Goel said, “A structured investment approach helps manage risk effectively. The 40-30-30 investment strategy allows for phased accumulation: a) 40% of capital is deployed at the first sign of deep value or market correction; b) 30% is added when the market drops further; and c) the final 30% is deployed when signs of recovery emerge. This method prevents premature capital deployment and allows for gradual accumulation, reducing risk.”

Is the SIP approach better in falling markets?

On whether investing in SIP mode in a bear-hit market, Mohit Khanna, CFP at Purnartha Investment Advisors, said, “Due to uncertainty of the event timeline, investors should keep investing methodically, periodically via SIP. While the returns profile of the equity asset class is lumpy, investments don’t have to be lumpy. Investors should win over their penchant for ‘catching the bottom’ and follow a disciplined approach of investing at all levels to generate wealth over time.”

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.