At close today, both Sensex and Nifty are down by 30%. We are officially in bear territory. It is considered a bear market if the market has fallen more than 20% from the recent highs and the investor sentiment is negative. Some market pundits are predicting that there is going to be a recession worse than the 2008 crisis. I have no idea if that will happen, but I am not worried at all. Also I cannot predict market, so I can’t even tell if they are correct or not. But I have a plan.
As I have been saying in the last few posts about market, don’t worry what the market is doing. I know it is scary to see all your investments bleeding red. Unless you have started investing only recently, you most certainly have seen your portfolio bright green in the recent past. So why the fear towards the drop? If you are experiencing uneasiness it is perhaps because you did not encounter such drop until now. Remember, the drop so far is nothing compared to the drop in 2008. As you can see below, Sensex dropped from more than 20,000 to less than 10,000. That is a loss of 10,000 points. Sensex in the recent past has lost the same 10,000 points but at a higher base of 40,000. So what was more than 50% drop earlier is just 25% now. We have to wait and see if Sensex will fall further.
This is a very good time to re-balance if you have not already started. I am pretty sure that your equity to debt ratio must have strayed far from your intended asset allocation. If you are following the 70:30 allocation, then sell some of your debt funds and invest in equity everyday. You don’t have to do it all in one go, especially if the amount is huge. Move the investments slowly over several days as the market is going down.
I still think the market is not yet fairly valued, so I don’t expect great returns in quick time. If you prefer to wait a bit longer before investing, that will still be fine. But don’t redeem your equity investments at this point. You will make your losses permanent unless you think you can find a good investment for the redeemed amount. Whether the markets will go down or up from here, I don’t know.