An unprecedented bull run and rising chorus about the perils of overstretched valuations have come to an end with correction in Indian markets. Both the broad indices Sensex 30 and Nifty 50 have declined by more than 10% from the peak levels in September of 85,978.25 and 26,277.35 points respectively.
Some experts are gradually recognising buying opportunities as the indices sink. People are watching P/E multiples and other variables to identify that golden moment to seize a stock that they hope will rebound to generate returns. But one should be cautious while buying stocks in this market. Co-founder of MIRA Money, Anand K Rathi, flags the issues.
Don’t assume markets will quickly rebound
One common mistake people make when investing in a declining market is assuming that the market will quickly return to normal after their investment. While this has happened in the last two or three years, it’s usually not typical for the market to return to new highs immediately. The market may recover more quickly if the decline is event-driven, such as due to a war or another external factor. However, when the issues are internal, like the current situation, which is economy-driven, it typically takes time for the market to recover. Therefore, one key mistake to avoid is the expectation that investments will quickly rebound within a couple of weeks.
Market can drop after you buy
Another misconception is the idea that quick trading can help mitigate losses. In reality, after you invest, the market could drop another 10% before it starts to recover. If you’re investing, it’s important not to use short-term money; you should always invest in equities with a long-term perspective. Trying to time the market or assuming you’ll be able to sell quickly can lead to poor decisions. By avoiding short-term money, you can ensure more secure financial planning.
Go not by decline in price, but by quality
Additionally, many investors make the mistake of buying heavily fallen stocks, assuming that if a stock that was worth Rs 100 has dropped to Rs 50, it will soon return to Rs 100. However, there could be valid reasons for the decline, such as the company’s slower growth rate or poor quality. It can continue to fall to Rs 25. Therefore, it’s crucial not to purchase the stocks that have experienced the most significant drops. Instead, focus on investing in high-quality, growth-oriented companies.
Never borrow to invest in equities
Another error people make is thinking that a 10% decline from the market peak means it’s a good time to sell their home or leverage their investment portfolio. Leverage, in the context of investment portfolios, refers to using borrowed money to increase the potential return of an investment. This approach can be risky. Just because the market has dropped 10% doesn’t mean it won’t decline further. As a rule, never borrow money to invest in equities.
The equity Indian markets are in the grip of a correction. Anand K Rathi, co-founder of MIRA Money tells News9 why to stay cautious when buying in a falling market. Markets Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
