Monday morning blues took on a different colour as domestic equity markets too crashed in line with the performance of global markets since Friday.

The S&P 500 Index, the Dow Jones, the FTSE and Japan’s Nikkie all fell between 2.8% and 3.2% on Friday. The Shanghai Composite index fell 4.5% on Friday and so far today has fallen 8.5%.

As the world’s largest economy slows down and its consumption takes a hit, there is uncertainty on how this will impact other economies around the world. According to a recent report from Edelweiss Research, contrary to popular perception, the yuan’s depreciation is likely to have been triggered by an attempt to stem capital outflows, which seek to tighten liquidity and offset any attempt to reflate the economy. The devaluation is, undoubtedly, deflationary and a potent headwind for countries caught on the wrong side of terms of trade (ToT).

“We need to assess to what extent global factors can impact our economy. So far, we have shown resilience and the RBI (Reserve Bank of India) too has always acted when required. Our economy is on the path of recovery albeit slower than earlier expected," said market analyst Ambareesh Baliga. Given these fundamentals, Baliga said, this is a situation, which should be utilized to buy into the equity markets.

If you missed entering the markets last year and felt that the 28,000-30,000 levels on the Sensex were too expensive to buy, this is a good opportunity to start buying. It’s, however, never recommended that you go all in at once.

According to Gajendra Kothari, managing director and chief executive, Etica Wealth Management Pvt. Ltd, “Over the last 2-3 months we have told investors to enter the market through systematic investment plans rather than lump sum. In today’s fall we are enhancing the allocation to equity through STPs and moving higher amounts into equity."

It’s difficult to spot the bottom of the market or when the fall will stop and markets will turn around. Hence one should continue existing investments and top up systematic investment plans if you have spare cash.

According to Ashish Shanker, head investment advisory, Motilal Oswal Wealth Management, “We work on portfolio allocations and wherever clients are under-allocated to equity we are recommending buying. Moreover, past market cycles have shown that in sudden large falls when money gets invested future returns have always been good."

So, you definitely shouldn’t sell in a panic now, but neither should you be too aggressive and panic to buy. Invest in equity if you have spare cash. It’s advisable however, not to get too ambitious in what you buy. Kothari recommends sticking to large-cap diversified funds and adding more in existing funds rather than buying new ones. Shanker also recommends sticking to large caps given the high valuation in mid and small-cap stocks; balanced funds too work well now, given that yields could fall further, he added.

If you must select individual stocks, stick to companies with low debt, high cash on books good quality management and high earnings growth.

Many overseas brokerages remain overweight on India and identify it as the most promising emerging market. This, along with a easing interest rate cycle, puts the Indian economy and capital markets in a good spot.

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