How can retail investors handle volatile market which is influenced by many factors?

 In the past week the market corrected. This correction was backed by the data released that indicated the rising inflation in U.S. . So if the inflation in US is increasing, then the possibility of rate cuts of US bonds would be delayed. In this blog let us look into it deeper.  

Federal Reserve [Fed] is the Central Bank of US. The Fed rate refers to the rate that is decided by Federal Open Market Committee [FOMC]. This rate of interest is charged on inter bank fund transfer which are held by the Fed. 

This interest has a huge impact on US bond yield. The Fed increases the rate when the inflation rises. This leads to decrease in the price of existing fixed bonds and increases the yield in new fixed rate bonds. 

So when the interest rate rise, bond yields are more. So investors prefer bonds over stocks. When the US inflation data released, the investors felt that the Fed rate cuts, which was expected this year might get delayed. So we witnessed strong FII selling in the market.

The other factor that influence FII selling is overvaluation in the markets.The FIIs look for both the fundamentals and valuation. When the three state election results came the markets started to rise, in the hope that the same party will rule again. So FIIs started to invest more in Indian companies. 

So even the election results also have a very strong impact on the markets. 

Now since many have started SIPs and other investments ,it was cautioned by some investors that we may visualize a cyclical rally[sudden bull and bear behavior]in the market. In this scenario it is very much important to be patient and should use 'buy on dip ' strategy. 

We cannot time the market. If we have a fundamentally strong stocks in our portfolio, then we can try accumulating them during each correction. 

So during a period of cyclical rally it is indeed important to give importance to the fundamentals rather than just focusing on small caps and penny stocks. It is only said to focus on fundamentals and valuation, but not to ignore any stocks which are small cap but have a good fundamentals.

Even the Regulator has said that, the small cap index is overvalued. People invest on small caps because only they have more growth prospects than an established blue chip company. However these small cap companies are highly volatile. 

Conclusion:

So in the present scenario we should atleast try to find out valuation whether it is small or large. Further instead of investing in new companies trying to accumulate fundamentally strong stocks already present in the portfolio.

Also investing in 'defensive stocks ' like pharma companies is also a good strategy. These type of companies will have a good business even in case of recession. Nobody is going to ignore medicine if they need it! Similarly some select FMCG stocks. Pharma stocks also corrected last week.

This blog is for creating awareness and for knowledge sharing purposes only. All these are not an advise in any way. This blog post is based on the news articles and opinions of ace investors. If you wish to invest do consider taking an advise of a SEBI registered advisor. 

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