It has been an interesting week. NIFTY Smallcap 100 index went down about 9.4% this week.
But before you start panicking, it is important to understand how we got here. Many believe that one fund manager's comments made last weekend about the over valuation and danger in Mid and Small caps has caused this fall. But that is not the case at all. This is not the first time he has made this statement. This statement was made by him, many other fund managers and Mutual Fund CEOs back in October 2023 as well. Even we highlighted this fact in our Market Outlook in October 2023 (attached), asking you to book profits in Mid Caps and Small Caps and not to increase exposure beyond your Asset Allocation. Surely when everyone was pointing this out, one would imagine the markets to correct just like how they did this week. But let's look at the data to understand what happened -
Even after the warning bells in October 2023, markets, especially mid and small caps, continued rising. However, since September 2024, markets have been shaky and have been falling - we are presently down about 11-21% across segments. Many individual stocks are down 40-50-60%.
Why the fall? Many things have happened over the past few months, read our Market Outlook from last month in case you missed it. The sentiment in the market right now is highly pessimistic. It’s the recent retail investors of the post Covid era who are seeing their first major correction and are in panic mode.
But this is what Equity markets are all about. Corrections are a feature, not a bug.
This is the time where you just need to stay positive and stay invested (read our last article on the importance of staying invested!). It is always darkest before dawn, and it is likely that we are nearing the bottom of this correction. This does not rule out the chances of a further 5-6-10% correction (or even more), but the odds seem in favor of a bounce back from these levels.
Investing is all about controlling your emotions.
So, just as you did not get carried away in the rise last year and stuck to your asset allocation - Do Not Panic in this correction and just stick to your Asset Allocation and long-term financial plan.
It is an excellent time to understand the beauty of Asset Allocation - If your portfolio is well diversified across Debt, Equity, International Equity and Gold, you would not have seen such a big fall. Investing is all about diversification, avoiding the big mistakes and not getting carried away in any single asset class or segment of the market. This is why we only recommend diversified portfolios spread across Large Caps, Mid Caps, Small Caps and different sectors and industries. If you are over exposed to Mid and Small Caps, it is good to review your risk profile financial plan, learn and plan better for the future! Give us a call, we are always here to help!
SMFS Actionable Insights (What Should You Do?)
As of 15th February 2025 | NIFTY 50 - 22,929 | SENSEX 75,939
1 | This is a great opportunity for long term investors who have liquid capital available to deploy - we recommend deploying 20-40% of the available capital right now starting an STP for the remaining amount. |
|---|---|
2 | Review your Asset Allocation. It might be time to deploy some money from Debt to Equity to Re-balance your Asset Allocation. |
3 | Do Not Panic. Markets go through ups and downs. It's always darkest before dawn. Just Stay Invested! |
4 | If you have on-going STPs we recommend moving 20-40% of the liquid funds to equity. In case markets correct further we can make more lump-sum switches. The weekly STPs can still continue as per the original time horizon. |
The primary thing to always remember - stay calm, do not panic and do not get carried away by headlines. Do not make any knee-jerk reactions and just stick to your financial plan and asset allocation. As we keep reminding you, volatility is in the nature of equity markets, and you need to accept that as par for the course.
Comments