The Indian stock market has experienced significant volatility in recent months, with the benchmark Sensex falling 1.8% on February 28, 2025, closing at an eight-month low of 73,198 points. This decline has raised concerns among retail investors who are unfamiliar with the cyclical nature of markets. Experts advise investors not to be swayed by short-term market swings but to focus on their long-term investment strategies and asset allocation.
Experienced fund managers recommend staying invested in high-quality stocks available at attractive valuations and maintaining a minimum investment tenure of three to five years. The recent market decline has been primarily driven by sell-offs from foreign portfolio investors (FPIs) over the past five months. Between October 2024 and February 2025, FPIs sold a net of Rs 2.12 lakh crore from Indian equities, driving market valuations lower.
Despite the significant fall, historical precedents show that markets have recovered from similar drops in the past. In October 2021, the Sensex experienced a 9-month slump, falling over 16.8% before rebounding. Nilesh Shah, MD of Kotak, commented, “Often, markets are driven by flows rather than fundamentals.
They go above the fair value when they rise and fall below the fair value when they decline.
Long-term strategies during market swings
As long as FPIs continue selling, the market will keep dropping, but once the selling stops, the decline will too.”
Fund managers advise investors to avoid reacting to market movements and instead focus on long-term investment horizons.
Selling in the current market conditions can lock in losses, which are otherwise merely notional if not realized. Experts recommend a staggered investment approach in high-quality stocks and large-cap schemes, as these are likely to rise once FPI outflows cease. Asset allocation remains crucial, and investors are urged to avoid overinvestment in mid- and small-caps.
Multi-asset allocation funds have shown better resilience, with the top-performing schemes experiencing significantly smaller declines compared to the broader market. Market volatility in India is expected to persist until uncertainties surrounding US tariffs are resolved. Devender Singhal of Kotak Mahindra AMC believes that large-cap stock valuations are currently attractive and suggests that long-term investors consider re-entering the market with a focus on these stocks.
Singhal remains optimistic about the financial and consumption sectors but acknowledges that global market disturbances, particularly from the US, could result in short-term volatility. He notes that April is a crucial timeline when the US, under President Trump, might address reciprocal tariffs. In conclusion, despite short-term market declines, retail investors should maintain a long-term perspective, adhere to their investment strategies, and seek advice from financial planners if necessary.
By focusing on asset allocation and quality investments, retail investors can navigate market volatility effectively.