Strategies to navigate market uncertainties

The stock market has seen rising investor participation in recent months, but market volatility remains a key stressor. The average Volatility Index (VIX) hit 19.87 in the first half of FY23, causing many retail investors to pause and slow down investments in the secondary market.

Market volatility is often unsettling for investors, making them recalibrate their investment strategies. But volatility is an integral part of investing. Embracing this market dynamic with the right approach can help you tide over volatile times and continue your investment journey without hiccups.

Here are some tested measures to make market uncertainty less intimidating and more fruitful for your finances:

Invest for the long term

When the market is uncertain, the prices of stocks tend to fluctuate widely, and many investors find it tempting to indulge in short-term trading. But a grasp of the finer nuances of markets is imperative to make trading work for you. For retail investors with limited market know-how, a more prudent approach is to invest with a long-term horizon.

Market volatility is temporary in nature. By staying invested over the long run, you can tide over short-term uncertainties without jeopardising your investments. In fact, use market volatility to accumulate good stocks at lower prices and hold them for a minimum of seven years. With this approach, you stand to benefit from the long-term appreciation of your market investments.

Stick to the plan

When the market behaves unpredictably, many investors abandon their goal-based financial plans to start playing in the market. However, this could be detrimental to your investment journey in the long run. Use your original plan as the compass while making any investment decision.

Make use of the opportunities in the market if they take you closer to your financial goals without destabilising your portfolio. Playing it safe is always better if taking an additional risk may compromise your financial stability. On the other hand, if your portfolio has room for more equity exposure, you can add more high-return instruments to your portfolio.

Switch to SIPs

When faced with volatility, one of the biggest challenges is finding the right point to enter the market. You could face significant losses if the prices fall after you have invested. A Systematic Investment Plan (SIP) can be a game-changer here. In an SIP, you invest a small sum in the market each month rather than a lump sum upfront.

This approach enables you to buy more units when prices fall, making the market work to your advantage. You also get the benefit of rupee cost averaging with SIPs, which could even bring down the overall cost of your investment over time.

Focus on non-cyclical sectors

If you want to continue investing in the market without taking on significant risk, non-cyclical sectors may be a great option. Also known as defensive sectors, these market segments are relatively unaffected by economic uncertainties. They may even outperform the market during uncertain times.

Some examples of such non-cyclical sectors include consumer staples and healthcare. These products and services are fundamental requirements for people and the economy, so companies in these sectors will typically remain comparatively immune to uncertainties.

Diversifying portfolio

Portfolio diversification is the best strategy to protect your investment from market cycles. A healthy balance of fixed-income and equity investments can help optimise your risk exposure and offset any potential losses due to volatility. You can consider diversifying among various market sectors, asset classes, or a combination of both to bring stability to your portfolio, particularly during uncertain market phases.

Seek professional assistance

Each investor’s journey is different. The impact of market uncertainties on your specific portfolio could vary from the effect of volatility on another investor’s assets. In case you feel that you are hitting a roadblock in navigating markets, professional financial advisors can be of invaluable help. They offer guidance and assistance to help you tide over the market volatility. You can also rely on their expert opinions to ensure that you remain on the path to achieving your financial goals as planned, undeterred by market movements.

Bottom line

The market works cyclically, so you will frequently witness bullish and bearish market phases. Volatility is the norm, and hence, it is always good to have an action plan in place that can help you continue your investment journey irrespective of the uncertainties in the market.

The measures outlined above can help you get started. The trick is to remember that with the right investment approach, volatility can actually be an opportunity rather than a threat.

(The author is the managing director and chief executive officer of Axis Securities)