Don’t panic-sell, avoid influencers, reject BAAP: 8 practical tips to help you tide over market volatility

In the iconic climax of Chak De! India, coach Kabir Khan, memorably portrayed by Shah Rukh Khan, faces a tense moment during the decisive penalty shootout. He anxiously anticipates whether the striker will shoot left or right. Observing the player's stance, Khan suddenly realises she'll strike straight down the middle. Concerned, he hopes his goalkeeper will glance his way—and fortunately, she does. He quickly signals her to stay still and maintain her position rather than move impulsively. His timely guidance leads to the crucial save and clinches victory.

Now, I’m certainly no Shah Rukh Khan, nor can I—or anyone else—predict exactly whether markets will move up or down in the short term. Investors today frequently worry if markets will decline further or if recent rallies indicate a new upward trend. Drawing from over two decades in financial markets, I advise maintaining a cautious stance—holding steady for a few months until uncertainties, especially around significant events like the reciprocal tariff date set by Trump for April 2, settle down. If you're actively involved in stock markets, rest assured there’s never a shortage of opportunities to invest in quality stocks at attractive valuations, provided you remain patient and disciplined.

FII sell-off and global volatility

India has recently witnessed significant Foreign Institutional Investor (FII) outflows amounting to approximately $29 billion since October 2024. The MSCI USA Index notably outperformed, returning 26.49 per cent in 2023 and 24.58 per cent in 2024, compared to India's 15 per cent and MSCI Emerging Markets' modest 9 per cent. Recent corrections in the US markets further highlight ongoing global volatility, cautioning investors not to react hastily.

Also Read: FII shareholding in Indian stock market hits decade-low of 16%; Banking, IT lead sectoral outflows in January 2025

Global market dynamics under Trumpnomics 2.0

Trump’s second presidential term has significantly impacted global markets, notably altering bond yields and shifting liquidity. Japan’s monetary policy shift since mid-2024 reduced liquidity flows into emerging markets, including India. Concurrently, Germany's massive €500 billion investment in defence and infrastructure positively impacted the DAX, Germany's top 40 blue-chip company index, rising approximately 17 per cent YTD. Volatility spikes in markets like Turkey and Indonesia underscore contagion risks in currency markets, urging vigilance among global investors.

What's in it for India?

India benefits from current macroeconomic conditions—particularly stabilised US bond yields and moderate oil prices within the $50-70 per barrel range, providing economic stability. However, despite valuations moderating to historical averages, Indian corporate earnings are projected to grow only in single digits for FY25, making current market valuations around 20x PE appear stretched.

Strategic advice for investors in India

As markets show early signs of stabilisation, investors have an excellent opportunity to use short-term rallies to rebalance their portfolios. It's a good moment to weed out lower-quality stocks that crept into portfolios during the liquidity and momentum-fuelled market rally after the pandemic. Instead, investors should focus on fundamentally strong businesses characterised by healthy balance sheets, clear and sustainable earnings prospects, and trustworthy corporate governance.

Avoiding influencers who haven’t tested waters & rejecting ‘BAAP’ (Buy at Any Price)

Investments driven by influencers who haven't genuinely tested market waters can lead you astray, amplifying risks. Recently, stocks like Gensol Engineering, Paytm, Swiggy, Honasa Consumer, and Ola Electric have clearly shown the hazards of narrative-driven investing. While some stocks might eventually recover, investing purely based on someone else's untested advice, rather than your own disciplined approach, can hurt your portfolio.

Even reliable blue-chip companies like Tata Motors (down 42 per cent) and Asian Paints (down 34.35 per cent) illustrate the danger of ignoring valuations. Don’t invest merely because you admire a brand or believe the narrative; focus instead on whether the company’s fundamentals align with your investment goals.

As Warren Buffett famously said, “Price is what you pay; value is what you get.” Reject the costly ‘Buy at Any Price’ (BAAP) approach.

Stock selection: Fundamentals over narratives

Investment decisions must prioritise fundamental analysis over captivating stories. Stocks like Yes Bank ( ₹393 to ₹17), IndusInd Bank (single day 27 per cent drop), Vodafone Idea (sharp decline to ₹7), and Bandhan Bank demonstrate the danger of narrative-driven investing. Be sceptical of sensational claims such as "the next HDFC Bank" or "the next Infosys." Always evaluate businesses fundamentally. Remember actor Michael Douglas’ line from Wall Street: “The point is, ladies and gentlemen, greed, for lack of a better word, is good”—but only if grounded in reality.

In fact, both of the points above lead us clearly to one crucial conclusion: investing in stocks without proper due diligence—whether driven by influencer hype, social media trends, TV experts, personal bias, vested interests, attractive narratives, or simply admiration for a particular company—can severely erode your wealth. Bull markets often conceal these mistakes, making every investor feel successful, but the past six months have starkly exposed these pitfalls. Stocks previously favoured by popular opinion have demonstrated that even a single day or a few weeks can result in losses exceeding 50 per cent. The recent sharp declines underline the importance of careful analysis and disciplined investing. Always stay cautious and invest responsibly

SIP discipline and Rupee Cost Averaging

Don’t disrupt your SIPs due to market volatility. Investors often ask whether to pause SIPs during downturns—a classic mistake of market timing. Disciplined SIP investing and rupee cost averaging have consistently rewarded investors:

• A ₹10,000 monthly SIP in Nippon India Growth Fund over 25 years grew to approximately ₹10 crore, with a CAGR of 22.84 per cent.
• Similarly, a ₹10,000 monthly SIP in Franklin India Prima Fund over 25 years grew to ₹7.63 crore, achieving a CAGR of 21.18 per cent.

These examples aren't investment recommendations but highlight the power of consistent investing. Investment decisions should always reflect your risk tolerance, goals, and time horizon.

Avoid panic-driven SIP stoppages. For lump-sum investments, consider arbitrage funds and Systematic Transfer Plans (STPs) for gradual equity exposure.

Diversification: Your protection against volatility

Diversification is essential for effectively navigating market volatility. A balanced portfolio should typically consist of:

• Equities (Mutual Funds & Stocks): 50-70 per cent
• Debt (PF, PPF, NPS, Bonds): 20-40 per cent
• Gold & Real Estate: 10-20 per cent

Adjust these proportions according to your age, timelines to achieve your financial goals basically suited to your risk profile. You can also invest in other asset classes that you are knowledgeable about and have the time to manage, such as real estate or gold. However, only pursue these options if you have the bandwidth outside of your job, as your time is limited. Always trade cautiously.

Which app do you use to track daily price of your flat?

You bought a flat at ₹25 lakh, now worth ₹2 crore—sounds great, but over how many years? Calculate XIRR and see for yourself if the returns were truly rewarding.

But hold on, I’m not suggesting you avoid real estate. Quite the contrary, I’ve always believed that owning your own home is a great emotional investment if bought within your means. Many 'finfluencers' might encourage renting while conveniently making reels from their owned houses—don’t fall blindly for that narrative. If you dream of home ownership, go for it, just keep it comfortably within your budget.

Investing in land can indeed generate multibagger returns, like stocks, provided it's purchased at the right location and at the correct price. However, land carries risks such as litigation or title issues, much like penny or operator-driven stocks. Therefore, careful due diligence is essential.

I recommend applying a similar disciplined approach to the broader market. For direct stock investments, due diligence and ongoing monitoring are crucial. But if you're investing in mutual funds—whether index, multicap, flexi-cap, large-cap, or mid-cap—the diversification is inherently built in. There’s usually no need for constant tinkering, especially if your portfolio already includes other asset classes.

Ultimately, patience, wise diversification, and holding onto quality assets, whether flats, commercial property, land, or equities—remain key to building sustainable, long-term wealth.

Remember, you made money in real estate because you typically took out a loan, leveraged wisely, and held onto the asset patiently for 10, 15, or even 20 years. Moreover, you didn’t constantly track daily prices—mainly because there was no mechanism or mobile app to check real estate values every day, unlike stocks. You simply stayed invested through ups and downs without worrying about market volatility, wars, inflation, or elections.

Apply the same principle to mutual fund investing—remain patient and avoid constant tinkering. For direct stock investing, however, regular monitoring and active involvement become essential.

Pause, Reflect, and Realign – Don’t panic-sell

Instead of abruptly halting SIPs during downturns, reflect on your initial investment rationale. Panic selling locks in losses, while disciplined patience often rewards investors richly. If needed, gradually realign your portfolio rather than impulsively exiting. Maintain adequate savings outside equities to reduce anxiety during volatility.

Remember: “Panic selling is like jumping off a roller coaster mid-ride—stay seated, hold tight, and ride it out.”

Market Cycles: Reasons for selling will always exist!

Historically, markets always recover from crises like the Dot-com bubble (2000), 9/11 attacks, 2008 financial crisis, demonetisation, COVID crash (2020), and Russia-Ukraine war (2022). Reasons to sell will always exist, but missing the recovery poses greater risks.

Corrections are inherent, temporary, and inevitable. Rather than reacting emotionally, trust patience and disciplined investing. Markets eventually reward the calm, disciplined, and informed investor.

To conclude in Buffett’s wisdom: “The market is a device for transferring money from the impatient to the patient.”

The writer, Rishabh Parakh, a Chartered Accountant and founder of NRP Capitals, works with chairmen, founders, HNIs, and UHNIs in the realm of private wealth.