According to market mavens, investors should not panic in such a situation as that can lead to more wealth erosion.
Global equity markets, including the Indian spot market, have spooked after the coronavirus outbreak was termed a pandemic and the United States suspended travel from Europe. Markets have witnessed unprecedented and relentless selling, and it seems no signs of abating as new cases of coronavirus are being identified every day, worldwide.
Given that the stock markets have plunged into the bear territory, many investors must be bewildered if this is a time to panic or is this an opportunity to invest?
Let's understand how an investor should deal with a situation like this:
Don't make hasty decisions
According to market mavens, investors should not panic in such a situation as that can lead to more wealth erosion. This is a temporary phenomenon with a severe but temporary economic impact.
"Such events have happened before and the markets have bounced back again. If an investor has invested for a long term say 7-10 years, there is no need to panic and take hasty decisions like redeeming investments as this can hamper long term wealth creation potential," explained Harsh Jain, Co-founder, and COO, Groww - an investment platform.
Also, it’s important to consume content from credible sources to aid decision making. One should remember the initial reason behind the investment, analyze the situation from multiple angles and take a decision keeping a long term perspective.
Stay on side-lines but focus on calibrated buying
In such times, it would bode well for the investors to stay on the side-lines, and wait for clarity in the near future.
"Catching a falling knife is not a good idea in the current environment. But, a calibrated value buying approach coupled with patience will pay rich dividends to those who are able to weather the storm," said Aamar Deo Singh, Head Advisory, Angel Broking Ltd.
Avoid panic selling
In words of Archit Gupta, Founder, and CEO, ClearTax - an income tax filing platform, “During times of bloodbath at the Sensex, any panic selling should be avoided by small investors.” Retail investors suffer the most if they attempt to exit during such times. Therefore, it is best to avoid these bear phases.
“When plotted on a graph, these phases will be a mere blip in the overall scheme of things, investors should look at staying committed for 5-7 years or even 10 years,” he said.
Invest in the right stock
Markets experts, however, suggest that one should understand what is a right stock at the right time. One can focus on the stocks whose prices have tumbled due to the overall sell-off but where the company's underlying earning trajectory is robust and intact. That may help one in compounding wealth.
Continue with SIPs
If investors are committed to SIPs, continuing them will help lower overall cost and they will be able to buy more units. SIPs average out the risk of equity investment over a period of time. It allows investors to buy more units of a mutual fund when the market is low and reduce the per-unit cost of investment.
Jump in if open to risks
If somebody is a risk-taker, however, one could jump in and buy. "It may still go down but you will come out strong after the temporary hit and have stories to tell," said Bala Parthasarathy, CEO and Co-Founder, MoneyTap - an app-based personal credit line.
"If you absolutely strongly believe that the world is ending, by all means, go to cash or gold. But having survived the 2008 financial crash and 2000 dot-com crash, the people who have the most regrets are those who sold at the bottom of the panic. But if you really need some cash, perhaps you can partially take some cash out," he said.
Vasanth Kamath, Co-Founder and CEO of Smallcase Technologies, meanwhile, said that such events are great reminders of the need for a diversified portfolio, and investors should start looking to build that in order to mitigate the impact of any such events in the future.
Disclaimer: CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
First Published: IST