If you started your equity investment journey in the past year, chances are you have felt the jitters of a volatile market. As an investor, looking at an unsteady portfolio may raise doubts about your investment decision, but if history is anything to go by, such swings are part and parcel of a market cycle, and shouldn’t impact a long-term investor. In fact, such setbacks often present more opportunities than failures.
In a fireside chat with Kailash Kulkarni, chief executive officer (CEO) of HSBC Mutual Fund, spoke to investors at the Mint Money Festival on how to rebalance risk and reward. The underlying theme of the conversation was that a patient, long-term investor with discipline and a staggered approach can turn corrections into opportunities, because ultimately, India presents strong fundamentals to drive markets higher.
“Volatility might feel like a new experience for investors who entered the markets in the past five years, but such fluctuations are not unusual,” said Kulkarni.
Encouraging a long-term outlook, he recalled the past two decades when the Indian markets experienced abrupt declines of 15-20% within short spans. Each time, the markets not only recovered, but rallied even higher. Kulkarni cited the period between 2003 and 2008, one of the best for Indian markets, when five separate corrections of more than 20% still gave way to massive rallies.
“With strong fundamentals, a resilient economy and falling interest rate expectations, I see an opportunity for investors with patience. I would reiterate that timing the bottom is impossible, but staggered investing could help investors ride through uncertainty.”
Investor sentiment in volatile markets
Investors can also draw comfort from the fact that the Indian economy is increasingly becoming resilient. Global developments have always influenced the Indian stock markets, and current geopolitical tensions, particularly Donald Trump’s tariff measures, have the potential to unsettle investors. However, a key difference today is how markets respond.
In the past, such global shocks often triggered sharp overnight crashes. Now, declines are unfolding more gradually, with indices slipping steadily over a period rather than plunging in a single session. And for the investors, this presents opportunities.
“Indian investors have matured significantly, in my experience. Panic-driven selling is far less common than it was a decade ago. In fact, sharper market corrections now often attract greater retail inflows, with savvy investors buying into dips,” Kulkarni noted.
So, what level of market decline should investors treat as a reinvestment opportunity? According to Kulkarni, while minor corrections are inevitable, a sharp collapse like the one seen during covid is unlikely. “Small dips of 1-2% don’t really present meaningful opportunities,” he explained. “It’s when the market corrects by 15-20% that investors can truly benefit by staggering their investments.”
The crucial point, he emphasized, is to stay focused on India’s long-term fundamentals of growth prospects, improving global ratings and credible fiscal management.
But is it always safe for retail investors to keep pumping money into the markets, especially when foreign institutional investors (FIIs) have been selling aggressively? Addressing this divergence, he explained that while “hot money” from FIIs tends to flow out in response to global interest rate cycles, long-term institutional investors remain committed and continue to invest heavily in the Indian market.
As for direct stock investing versus mutual funds, he said direct investing will always form a part of some investors’ portfolios due to its excitement value. “While mutual funds are the right way to create long-term wealth, direct investing gives individuals excitement, much like bungee jumping,” he said. The key is for investors to honestly assess how much risk and potential loss they can tolerate and set their direct equity exposure accordingly.
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