The results of the Lok Sabha elections announced Tuesday were marked by intense market volatility. Historically, market movements have been influenced by election outcomes, and the trend has certainly continued this year. Following the exit poll predictions on June 3, Sensex rose by 3.39% but plummeted the next day as election results started coming in. June 4 saw the Sensex nosedive by 5.74% which wiped out Monday’s gains, leaving investors in a tizzy.

As an investor, what should be your investment strategy during such periods of market volatility? Should you stay invested or redeem? Should you add to your investment? Let’s explore some strategies you can deploy to ride out such a storm while seizing the hidden opportunities it may present.

Understand the market’s volatility

Volatility is an inherent aspect of the stock market with fluctuations ranging from moderate to high. A correction happens when volatility trends downwards. A 2-5% correction at any given time is considered normal and should be factored into your investment strategy. When corrections exceed 10%, you should consider strategies to capitalize on the situation. Deep corrections are often followed by strong recoveries, something that was seen after the dot-com bust in 2000, the Lehman crisis in 2009, the mid and small-cap turnaround in 2017-18, and the bull rally following the pandemic. Those who remained invested or bought at low valuations during these periods often emerged wealthier and reaped significant rewards.

Don’t time the market

Predicting market movements is not only challenging but also risky. Given that fluctuations are unpredictable, timing the market may result in erosion of overall returns. Instead, it would be prudent to devise a long-term investment strategy, such as one involving regular contributions via a Systematic Investment Plan (SIP). By doing so, you can benefit from the rupee cost averaging strategy where a fixed amount is invested at regular intervals regardless of the market conditions.

Continue your SIPs

Festive offer

One of the greatest advantages of SIP is the habit of disciplined investing it inculcates. When followed diligently, this approach can reward you with significant benefits over time, including during periods of market volatility. When the markets dip, SIPs allow you to accumulate more units due to lower prices, and vice versa, thereby averaging the cost of your investment. Pausing or stopping your SIPs during a market downturn goes against the fundamental rupee cost-averaging strategy. Avoid knee-jerk reactions to market volatility and stay invested to mitigate your overall risk.

Don’t redeem equity investments

Investments should ideally be redeemed only when you are in dire in of funds, or the investment itself is nearing maturity. Stock market corrections are a part of the investment cycle and do not warrant redemption of investments. Moreover, redemption following a market correction will result in you losing the benefit of compounding, which can significantly boost your investment.

Make additional purchases

Volatile markets present excellent opportunity to identify sectors and stocks that have remained strong but also those which are poised for growth in the future. Assess your financial goals before investing and choose investments which will help you diversify your portfolio. A disciplined approach such as a SIP can help you add to your investment while mitigating your overall risk.

Don’t make big lump sum investments

When the markets turn volatile, it may not be a suitable time for making lump sum investments. It is wiser to stagger your investment costs via methods like SIPs. This will allow you to spread the investment into several smaller tranches, averaging the cost of your investment.

Stick to your goals, don’t deviate

In times of sharp market movements, investors may be more inclined to reduce their losses and end up redeeming their investments. In doing so, they may lose sight of the bigger picture, which is fulfilling their financial goals. Investing, especially in the stock market, is an endeavor that yields the best results when done in the long term, and that is what you must remember. Market volatility is a part of investing. By staying invested, you can ensure that your efforts are dedicated towards the fulfillment of your financial goals.

Navigating a post-election market can be challenging and demands foresight. The strategies listed above can help you not only reduce your losses but also make financial gains that will positively impact your overall wealth-creation journey in the long run.

Adhil Shetty is CEO, BankBazaar.com