What To Do If Stock Markets Correct

The last fiscal may have been the worst year for the Indian economy since Independence, but it was the best one for equity investors. Will the rally last? What strategy should investors follow if there is a correction—or a crash?

- Rashmi Pratap

WHY THE MARKET IS OVERHEATED…

Indian equity market among the most expensive globally

Inflation remains a worry; retail inflation has breached RBI’s threshold of 6%

… AND WHAT IF IT CRASHES

Investors should look at it as a buying opportunity

Apply the following filters to mid-and small-caps: good management quality, least amount of leverage, no major pledging by promoters, and valuation comfort

“IT WAS THE BEST OF TIMES, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair…”

The opening lines of Charles Dickens's novel A Tale of Two Cities—referring to the contrast between London and Paris, where chaos reigned ahead of the French Revolution—pretty much sums up the Indian economy and the stock market in a world reeling under a pandemic.

Look at the irony! While FY21 was the worst year for the economy since Independence, it was the best-ever year for equity investors. The benchmark Nifty 50 rose 72% in FY21 as India’s GDP shrunk 7.3% during the period.