Dealing with market volatility

The stock markets are currently trading at peak levels and the valuations are looking quite stretched, which calls for relook at the portfolio of investments. Also, the quarterly earnings, which turned out to be below par, and the RBI’s status quo stance, which was expected due to rising inflation, are all behind us and now stand discounted.  Going forward, the markets will move based on stock-specific news as well as geo-political situation across the globe, apart from governmental actions and policies.

Considering all these factors, the markets are most likely headed for heightened volatility in the days and weeks to come. Retail investors and traders might as well brace up to deal with such high level of volatility by adopting suitable strategic measures that will protect their capital as well as returns from the risk posed by volatility.

The strategy to be adopted is to spread out the risk by diversifying into different asset classes. Now that the markets are trading near their peaks and there is very little, if any, upside left, it would be good idea to book partial or full profits and invest the proceeds in other investment avenues.

Depending on the quantum of proceeds realised and the investment horizon, one can choose to invest in gold, residential and commercial real estate or debt instruments such as bank and company fixed deposits, debt mutual funds, etc. Such diversification in the portfolio will mitigate the downward risk posed by equities as well as ensure steady returns in the form of interest or dividend income going forward.