Use correction to enter the market

Direct investors should stagger their investments over 1-2 months; others can enter through MF SIPs

The past three weeks have been turbulent for the Indian equity market, with the benchmark S&P BSE Sensex slipping 1,200 points, or four per cent. The correction has been largely due to fear of an early rate rise by the US Federal Reserve and expectations of weak fourth quarter results by India Inc.

For those waiting on the sidelines, the correction could offer a good entry. “Those willing to stay invested for more than a year can enter the market now. Look at large-cap companies that have corrected significantly,” said Sudip Bandyopadhyay, CEO and managing director, Destimoney Securities.

Experts believe systematic investment plans (SIPs), either directly in stocks or through mutual funds, are a good option for relatively inexperienced investors. “If you are not an active investor, or don't have prior experience, SIPs in mutual funds are the best way to begin,” says Arun Kejriwal, an investment analyst.

SIPs work on rupee cost averaging and help reduce the average cost per share or unit overtime. They help mitigate the risk of market volatility and risks that come with timing the market.

Direct equity investors should spread their investments over one-two months and buy at dips. “Avoid lump-sum investment, as short-term volatility has increased and any correction in the global markets could drag down Indian equities further,” says G Chokkalingam, founder, Equinomics Research & Advisory.

According to some experts, several high net worth individuals have been booking losses or dumping stocks this month to pare their tax liability. Also, as entities clear up positions to project a clean balance sheet at the year-end, it has added to the selling pressure. “Investors should use this opportunity to get into the market. This kind of selling pressure won't be seen next month,” said a market participant.

While the market has corrected four per cent from its peak, several mid-cap stocks have fallen 20-45 per cent. “Mid-caps that had run up significantly in the past 10 months have taken a beating. Even those with a certain valuation comfort, have fallen,” says Chokkalingam, adding: “Investors should focus on buying the second set of mid-caps.\"

However, Bandyopadhyay feels retail investors should tread with caution. “Don't pick stocks only because they have corrected 10-15 per cent unless they are fundamentally sound. Use a stock-specific approach, rather than looking at broad sectors,” he says.

Experts believe the absence of positive triggers, the market is likely to move sideways for the next 10-15 days. A clear directional trend is likely to emerge only after the quarterly results start coming in by mid-April.

The good news is that a combination of low global crude oil prices, low inflation, record-high forex reserves and a stable rupee are positives and will keep India in a sweet spot and its growth story intact. Also, the expected rate rise from the The US Federal Reserve might still be a few quarters away.

“Investors need to be patient and temper their expectations. You are unlikely to get the kind of returns you got in the past 12 months, but there is room for a 14-15 per cent upside in the next one year,” said Kejriwal. The BSE Sensex has gained 27 per cent in the past year.