Should You Invest When Stock Market Drops? This Expert Tells You

Market expert answers all key questions in the wake of market gloom.

(Photo: The Quint)

The Indian benchmark indices have been on the decline for a while now. On 1 August, BSE dropped by 463 points and NSE by 11,000 points. It is the lowest collapse in the last five months. In such a situation, one asks what causes this decline in the stock market, if there is any possibility of a recovery, and whether investors should invest in such a situation. Market expert Anand Tandon spoke to The Quint, answering all key questions in the wake of market gloom.

Why Has the Market Been Tanking

The most important thing is that profits are not as expected. 20-25% of increase in profit was expected at the beginning of the year. But now, it seems difficult. One of the reasons behind that is over-valuation. We are good at ruining things for ourselves. The atmosphere has been ruined by the new provision in the budget, which increases the taxes for foreign and Indian investors.

The investment mood is damp.  Markets in the US and other countries are expected to fall too. In the US, despite a cut in interest rate the market has not been doing well. The rate of economy has slowed down and so it’s not surprising that equity shares are falling.

Is the Market Expected to Slip Further?

You can look at 2-3 markets. Large cap companies market which look expensive and small cap companies whose share rates have dropped so much that it is difficult  for the rates to dip any further.  It's very rare to see growth  in small and mid cap markets if large cap markets are dipping. It does not seem to happen. As long as value of shares of large companies get reasonable, dip in value of small companies will not stop.

Should the Investors Invest? If Not, Then When Should They?

It's not about the time, but if a genuine retail investor considers investing in SIPs, they should not stop if the markets drops. Because you are getting better returns and you can lower the average. At such a time you can start an SIP because evaluation of small and mid cap funds is reasonable and has dipped considerably.

You may see a dip of 5-10%, but if you have invested in SIP then you'll get reasonable returns. So when there's a turnaround in the market, your chances of making profits will be better. If you don’t want to invest in equities, you can invest in corporate bond funds which can get better returns as interest rates drop.

(This was originally published on Quint Hindi)