Use correction to enter the market

It’s been a turbulent time for the Indian equity market in the last three weeks. The benchmark BSE Sensex is down about 1,200 points, or about 4% during this period. 

For those who have been waiting on the sidelines, the correction could offer a good opportunity to enter. Experts believe that systematic investment plans (SIPs), either directly in stocks or through mutual funds, is a good route to adopt.

“For the uninitiated, SIP is a good option. If you are not an active investor, and don’t have prior experience, SIPs in mutual funds is the best way to go about it,” said Arun Kejriwal, an investment analyst.

What should be comforting to investors is that in the last 15 years, the market has given positive returns 53% of the time a month after the Budget and 58% of the time three months after the Budget.

SIPs work on rupee cost averaging and help reduce the average cost per share or unit over time. It proves useful in mitigating the risk of market volatility and the risk that comes with timing the market. Equity SIPs are similar to SIPs in MFs, except that here the investment is directly in stocks. These are offered by some leading brokers such as IIFL, Kotak Securities and ICICI Securities.

Experts believe that the Street was factoring in dismal fourth quarter results for corporate India. The general consensus is that there could be a re-rating or downgrade in corporate earnings, they said.

“Investors need to be patient. The market has run up considerably over the last 12 months and the returns need not get repeated in the next 12 months. Having said that, the market may gain 14 to 15% in the next 12 months, in line with its long-term average returns,” said Kejriwal.