• HDFC securities
• 21 May 2022
• Knowledge Centre

On March 18, 2022, Indian indices snapped out of their 2-day rising streak, with both the Nifty and the Sensex declining. The day’s trading session remained volatile, with selling pressure being especially witnessed by telecom, real estate and IT stocks. The previous week was also marked by volatility in the Indian stock market, with the S&P BSE Sensex and NSE Nifty 50 fluctuating between red and green.

Despite such volatility, India has been one of the best performing emerging markets, with the Nifty 500 generating returns of 36.78% and the Nifty giving returns of 30.98% between January and October 2021, as compared to the MSCI Emerging Markets Index, which slipped 18%.

 

Why is the Stock Market Volatile?

Multiple factors are affecting not just the Indian stock market but the global markets. Firstly, the rising oil prices have hit almost every nation. India is particularly exposed to oil price rises because it is a net importer of crude oil. Rising oil prices have a direct impact on inflation.

Another key factor affecting economies worldwide, and therefore their stock markets, is the change in stance of the central banks. From an ultra-loose policy to help nations tide the unprecedented pandemic, central banks are now tightening their monetary policies. On May 4, 2022, the US Federal Reserve raised its benchmark interest rate by half a percentage point, its largest hike in 20 years.

On the very same day, the RBI raised its repo rate by 40 basis points to 4.4%. These rate hikes are a key means for central banks to curb inflation. However, such rate hikes have a direct impact on market sentiment, which leads to stock market volatility.

The markets have also been on edge due to the Russia-Ukraine conflict. Geopolitical tensions have only added to the existing uncertainties in the financial markets.

 

Is Volatility Bad for Investors?

While volatility means higher risk, it also means more trading opportunities. Volatility means rapid price moves, which throw up multiple opportunities to buy and sell. When the markets are flat, even the best trader in the world will fail to find opportunities to make a profit. So, in itself, volatility isn't a bad thing. It only becomes a threat when investors fail to put in place appropriate risk management measures.

The other aspect to consider is that market corrections are part and parcel of investing in the stock market. Fortunately, India is on a strong footing for economic recovery. The government has already laid the ground with major reforms, such as RERA, the Insolvency & Bankruptcy code, reduced corporate tax, etc. In addition, the Union Budget 2022 focused on initiatives that would encourage expenditure on infrastructure and sunrise sectors, which are likely to positively impact market sentiment.

Moreover, corporate earnings are rising again, with analysts expecting further improvements over the coming quarters. With this backdrop, equity prices are likely to rise going forward. But what if you don't have a lump sum to invest right now or if your risk appetite doesn't allow a lump sum investment?

 

Investing in Stock Through the SIP Route

Keeping in mind the rising popularity of stock investments in India and the economic uncertainties that prevent lumpsum investment into higher-risk assets, HDFC Securities suggests periodic investments through the DIY Stock SIP route. Not only does this give investors complete control over their investments, but it also allows them to buy stocks in phases, based on the funds they have at their disposal.

Similar to the SIP route to investing in mutual funds, investors simply need to set a specific amount to be invested in the stock markets on a weekly, monthly or yearly basis. This allows systematic investment and could be a good option for those with a long-term investment timeframe. Along with a displaced investment strategy, investors can also make the most of volatile markets through the SIP route.

 

Benefits of DIYSIP

• Affordable – Invest the amount and in intervals you are comfortable with.
• Lower average cost – It gives a cushion against downturns by allowing you to remain invested through the entire market cycle.
• Informed decisions – Choose from recommended stocks from SIP Value Picks to minimise risk.
• Eliminate emotions – Don’t fall prey to greed or fear while trying to time the markets.

 

Features of DIYSIP

• Track your investments online.
• Modify your investments whenever you wish to.
• Trade in stocks and ETFs (Gold or Index).
• Pause or restart your DIYSIP online, as needed.

 

To make it easy for investors to determine the amount to invest and the timeframe, HDFC Securities also provides a DIYSIP calculator, which can help you estimate the potential returns and make an informed investment decision.