​Stock markets in India have crashed phenomenally during periods like Harshad Mehta scam, terrorist attacks on world trade center, sub-prime crisis in USA or Lehman Brothers collapse etc. On such occasions, the benchmark index, Sensex has fallen more than 2000 points in a single day. The Indian stock markets, though not crashing phenomenally, are currently in a bearish phase of continuous fall due to following macro and micro factors as well as other market related concerns. 

• Rising crude oil prices.
• Weakening of the Indian rupee against the dollar.
• The increasing fiscal deficit
• The trade war between US and China.
• Liquidity crisis in NBFC industry.
• Lackluster GDP growth and decline in discretionary consumption. 

It is a natural phenomenon on the part of investors to get fearful about their investments, when markets are subjected to sharp corrections. Here, it is apt to remember what Warren Buffet said “Be Fearful when others are greedy and greedy when others are fearful.”

Those who bought blue chip shares at throw away prices, after the mayhem in stocks markets during 2009 post Lehman crisis, are sitting on hefty profits even at the current bearish stock prices. Sharp market corrections provide opportunities for investors, but it’s not for the faint heart. Navigating volatile markets can be nerve wracking, without a solid plan of action. 

We give below a glimpse of some do’s and don’ts that an investor should take care of during the market crash.

1) Differentiate between risk and volatility:

Volatility does not imply risk, and it does not means the risk of losing money. Volatility is a short term scenario, which can only be harmful if you are a short term equity investor. If you are a long term investor you can beat volatility and can gain from the markets with a long term horizon.

2) Don’t liquidate your portfolio in panic:

Evaluate objectively, the extent to which the fundamentals of your stocks have been adversely impacted by the ongoing macro headwinds. If the adverse impact on growth and profitability of a company is significant and long-lasting, then you may want to exit such stocks either fully or partly. However, the changing macro factors do not have the same impact on the fundamentals of each company. For example, a falling rupee may hurt importers, but it may actually benefit exporting companies. Hence, one should not liquidate their entire portfolio in panic in a falling market, but evaluate individual stocks carefully. Do not take emotional decisions amidst the volatility of the market.

3) Stay invested through your systematic investment plan (SIP):

Don’t forget the theory of value investing. Bearish markets throw lot of value investment opportunities. It is an investment strategy where stocks are picked based on the fact that they appear to trade for less than their intrinsic value. Value investors actively seek out the stocks they believe the market has undervalued. Your invested amount might have shrunk because of the under performing markets. As long as your stock selection is based on robust business growth, good corporate governance standards and value investing principles, you need to hold your investments and further accumulate such quality stocks to create long term wealth.

4) Everything that falls isn’t necessarily cheap or an investment opportunity:

Every stock that is quoting near to 52 week low price is not necessarily an investment opportunity. Don’t judge the cheapness of a stock purely on the basis of the correction in its stock price. It is important to judge the intrinsic value of the underlying business for the price you are paying.

5) Cash is king:

In a crashing market, cash is king. Such market provides innumerable quality investment opportunities at grossly low prices. Hence, maintain sufficient cash positions to grab any such mis-priced investment opportunities.