Crash And Burn: Should You Buy Stocks At Lower Levels?

If you are tempted to buy a stock whose price has dropped sharply, remember that there’s still a lot of volatility left in the stock markets, and sometimes the volatility in negative news-driven stocks can persist for a long time

- Kundan Kishore

Around the start of the fourth quarter of calendar year 2024 (around September-October), there was plenty of money to be made in the Indian stock market, irrespective of whether you were a savvy investor or not. The choice of stocks and the skill to time the market didn’t matter so much.

A simple back-of-the-envelope calculation shows that nearly 80 per cent of the BSE 500 stocks delivered positive returns in one year as on September 30, 2024. Essentially, if you had randomly chosen 10 stocks, eight of them were likely to have been profitable. The markets had entered the Goldilocks phase at the time; there was low volatility, and returns were high. Besides, mid-cap and small-cap indices saw significant gains.

The party lasted till it did. The following period was not that exciting for investors. A series of events, both on the global and domestic fronts, such as economic slowdown, trade tariff speculation and foreign institutional investors (FIIs) sell off, coupled with already inflated company valuations, led the stock market into a more volatile and uncertain territory.

“India has seen strong foreign portfolio investor (FPI) outflows on the back of fragile sentiment of overwhelming growth coupled with elevated valuation,” says market expert Ajay Bagga.

Since October 2024, the markets have seemingly entered choppy waters, leaving investors who came in late in the market looking at their portfolio values turning into red.

The major benchmark indices, the BSE Sensex and the Nifty 50, have tumbled nearly 16 per cent from their September 2024 peak, marking the sixth-largest drawdown since the 2008-09 financial crisis and the second-largest since the Covid-led crash in March 2020.

Midand small-cap indices, such as the BSE Mid-Cap and the BSE Small-Cap faced the maximum heat during this time and skid 22.22 per cent and 25.85 per cent, respectively.