New Delhi: Stock markets in India have been on a wild ride for the past couple of months. The coronavirus outbreak has wiped off lakhs of crores of investors’ wealth in an unexpectedly short duration of time. The benchmark equity index, BSE Sensex, has lost a whopping 25% in the past two months.
Unfortunately, small retail investors have been one of the biggest victims of this market crash as most of them suffer from a lack of knowledge and even the time to research and educate themselves about the nitty-gritties of trading.
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In such a situation, it is important that these investors follow certain guidelines while investing in equities at such volatile times – when markets are witnessing sharp upward or downward movement every single day – in order to make good returns all while protecting their hard-earned money.
Invest in low-risk blue-chip stocks
Blue-chip stocks are considered to be shares of large and stable companies that have been around for a long time. If small investors plan to make money in volatile markets, investing in large-cap blue-chip stocks is usually the least risky bet as these shares tend to reap returns sooner or later in the long run as soon as stability returns. On the contrary, the high-risk small-cap and mid-cap stocks may look very attractive due to steep correction, but they are high-risk stocks and value erosion is quite possible during bad times.
Avoid bottom-fishing
Bottom-fishing means predicting the bottom of markets and investing that time thinking that stocks won’t fall any further. Market experts have repeatedly said investors should not try to predict the bottom levels, especially in current times, as India is yet to reach the peak of the coronavirus crisis which may set off another selloff mode. Or otherwise, a sharp recovery can also not be ruled out if the government manages to contain the crisis.
Diversify investments
Never put all your eggs in one basket – as a famous saying goes. Investing in stocks of different companies from different sectors restricts the extent of damage in case one of the stocks or sectors takes a major hit. A diversified portfolio of stocks, hence, significantly reduces risk in times of volatile market.
Set your risk limits
Investors should keep in mind the kind of risk they are ready to tolerate in case of an unfavourable movement in the price of their holdings. As soon as that risk limit is crossed, investors should not keep holding that stock in hopes of a turnaround. Rather it is advisable that they take an exit from an investment and book losses in order to prevent further damage.
Book profits
Booking profits is as important as setting risk limits. Investors should avoid getting greedy, especially, during volatile times, and book profits from time to time. They can reinvest the money made and further multiply gains by making timely entry and exit in good stocks at the correct time.
(Written by Neha Goel. She is a Delhi-based business journalist.)
(Disclaimer: The views and investment tips expressed above are solely of the author and not those of ETV Bharat or its management. ETV Bharat advises users to check with certified experts before taking any investment decisions.)
