As you can see from the table Above, markets have delivered very good returns over the last five years. However, in the past three months, markets have started to decline. This has left investors with two key questions:
"Will the markets fall further? & Where should we invest our additional funds now?"
Let's address both questions one by one.
"Will the markets fall further? & Where should we invest our additional funds now?"
Let's address both questions one by one.
1. Will the Markets Fall Further?
Broad market indices have declined between 10% to 14% from their recent peaks. A 10% fall in the Nifty 50 is significant. Additionally, mid-cap and small-cap indices have fallen even more.
Currently, large-cap indices do not appear overvalued, which means the chances of a further decline are relatively low. However, mid-cap and small-cap indices had delivered exceptionally high returns over the past two to three years, ranging from 30% to 35% annually. Given this sharp rise, there is a higher probability that mid-cap and small-cap stocks may see further corrections.
Currently, large-cap indices do not appear overvalued, which means the chances of a further decline are relatively low. However, mid-cap and small-cap indices had delivered exceptionally high returns over the past two to three years, ranging from 30% to 35% annually. Given this sharp rise, there is a higher probability that mid-cap and small-cap stocks may see further corrections.
2. Where Should We Invest Our Additional Funds?
The primary rule for investors is to follow their asset allocation strategy while making investment decisions. For example, if an investor maintains a 70% equity allocation in their portfolio, and the recent market correction has significantly reduced their equity exposure, they should consider allocating new funds into equity.
Between large-cap, mid-cap, and small-cap segments, we recommend investing in large-cap stocks. Mid-cap and small-cap stocks have already delivered high returns of 30% to 35% over the last two years, and the recent 12% to 14% correction does not necessarily make them attractive or undervalued.
Between large-cap, mid-cap, and small-cap segments, we recommend investing in large-cap stocks. Mid-cap and small-cap stocks have already delivered high returns of 30% to 35% over the last two years, and the recent 12% to 14% correction does not necessarily make them attractive or undervalued.
Conclusion
Instead of trying to time the market based on short-term fluctuations, investors should stick to their asset allocation plan.
At this stage, we advise against taking sector-specific bets and recommend investing in Large-Cap diversified equity funds for stability.
At this stage, we advise against taking sector-specific bets and recommend investing in Large-Cap diversified equity funds for stability.
If the current PE ratio is significantly lower than the long-term 10 year average, it signals that large-cap stocks are available at attractive valuations, making it a great time to accumulate them for long-term growth.