Where To Invest In India’s Stock Market During Volatility

Volatility is considered an opportunity when you invest strategically. Conservative investors may find it a good practice to avoid volatile markets. But it is when investors should reconsider their investment strategies to secure gains. Volatile markets witness a significant increase in the frequency of one side trades. It can be buy trades or sell trades. Among various strategies to get benefit from investing in the volatile market, a few are mentioned below:

Volatility and Long Term Investors

Most investors prefer a long-term investment strategy in the volatile stock market. They buy securities and hold them for a long period, often for years, to gain more with the company’s growth. The strategy is based on the historical assumption that the market direction will become favourable in the near term as the stock market is meant to rise over time, and the fundamentally strong companies can sustain profitably in the volatile market. Long term investors can consider investing in the stocks of promising companies when their stock prices are significantly low. They want to stay and invest their funds in these stocks for years. While investors understand ‘how demat account works’, they should look for a discount broker to save on demat account charges.

Volatility and Short Term Traders

Intraday traders frequently trade within a trading session using advanced trading accounts and they need to watch the market change every second. In the case of day trading, no price fluctuations mean no profit. Swing traders look for a slightly longer time frame, maybe days or weeks, but they also need volatility in the market. These short trading traders can find numerous low cost and lucrative stocks to trade within a short period. However, they can avoid extreme volatile markets. They can use indicators like relative index, strength, and volume to find potential profit points.

Volatility and Options Trading

Volatility usually remains high when the market sentiment is bearish. High volatility is beneficial as Put Options can add value to an investment portfolio. Options traders can take advantage of a long straddle options strategy where the underlying security price can go up considerably. Another strategy is the Protective Call and Put Option. F&O traders hold short positions on the underlying security. These hedging strategies can minimise the risk during volatility and protect against unexpected price reversals.

Key rules to follow during volatile market

• Look at the base for volatility.

An economic release, good or bad news about companies, even a recommendation by a renowned analyst, unexpected earnings results, IPO news can result in an imbalance of trade orders, i.e., all buys and no-sells or vice versa. Sometimes institutional investors may cause market volatility, so verify the news before making a selling decision. 

• Avoid ostrich effect 

In the stock market, investors either overreact and exit from the market altogether, or they can avoid negative financial information and stay invested with a long-term perspective. However, both types of reactions are improper. You need to avoid herd mentality. Investors can reconsider the portfolio and sell a part of their portfolio to reinvest in reasonably priced securities with further growth. 

• Diversification

While you reconsider your portfolio during volatility, the foremost rule is to have a well-diversified portfolio. It will never let you down, even in a volatile market with negative sentiment. You must have a broad mix of investments across industries to tackle the volatile market. 

• Ignore extra margins and leverage

Volatile markets should not be based on additional margins during volatile markets. Avoid extremely leveraged positions as the profits may seem attractive, but they are not guaranteed. A wrong decision can wipe out all your gains.

Conclusion 

Investors can consider high dividend-paying stocks during the volatile market even if the stock price falls in the short term. The stock price does not get affected much due to volatility in the market. You will continue to earn a steady income as dividends. Therefore, make sure you analyse companies’ financial statements before considering them for long-term investing. You can rely on fundamental analysis to know the long-term performance. Invest in quality stocks with a lower P/E ratio than the industry average.