When is market correcting? There is a pre-election rally in Indian equity market, it might correct after election. Should we invest during the election or wait for the results? We have seen these queries coming from investors over past couple of months. Retail investor, with his small ticket size, wants to avoid volatility. Naturally because he doesn’t want to see red marks on his portfolio. He wants market to keep going up post he invests his money. So, the wait starts!
Normally, we would advise people to not worry about market volatility and adopt SIP route. But today, we decided to give a thought to this wait-till-the-correction-happens-strategy. And normally, we would do some historical analysis, but today let’s just stick to last market cycle. One that happened around last year. We plotted Sensex values, an equity market index, and marked the pre-correction, correction and post correction periods to see how much returns we would have generated till 10th April 19.
If one had invested before the correction i.e. around April last year, he would have gained 17% returns on his investments. If one had invested at the lowest point last year which was around October, he would have received 28% returns. Those who could not invest at this bottom, and waited for more correction would have received 3% returns. All these are absolute returns as all are calculated for less than one-year period.
This is a story of domestic investors. Which keeps repeating itself. The FIIs however make the most from any tiny blip available. The historic flows suggest FIIs have invested more in the years when Indian equity markets have been volatile and less when there was a consistent up rally.
During the years 2013, 2014 and 2018, when domestic investors are net negative, FIIS have poured in money and have bagged superlative returns. And this story keeps repeating.
What should you do?
How likely is it that you enter just at the bottom? What are the chances that you will be able to predict market movement every time?
We would say the chances are negligible. Your best option would be to invest in a disciplined manner and on a regular basis. Tools like SIP are your best options in all types of market scenarios. And if, you still want to track market and invest at a lower point then make use of any dip that’s available.
Remember over a long-term period every correction is going to look like a wrinkle. So, rather than trying to predict and time the market movement, participate at every turn, make use of every opportunity. Because more money is lost in waiting for the correction than in the correction itself.