Diversify MF portfolio away from recent high performers

Stock investors must focus on finding quality companies available at reasonable valuations

- BINDISHA SARANG & SANJAY KUMAR SINGH

The stock market has witnessed considerable volatility over the past fortnight. From 81,867 on August 1, the Sensex fell to 78,593 on August 6, before recovering to 80,436 by August 16. While investors have weathered the recent bout, they should be prepared for similar episodes in the future.

Hit by global cues A rapid appreciation of the yen in early August triggered a global sell-off.

"Investors borrowed yen at Japan's low interest rates and invested in higher-yielding assets abroad. However, as concerns that the Bank of Japan may tighten stance emerged, the yen began to strengthen. This led to an unwinding of some carry trades, causing sharp corrections," says Manuj Jain, associate director, co-head product strategy, White Oak Capital Mutual Fund.

Further contributing to instability was the assassination of the Hamas chief in Iran. "Weak employment numbers from the US sparked concerns that the world's largest economy could be heading for a recession," says Nishit Master, portfolio manager Securities Portfolio at Axis Management Service.

The Indian market is susceptible.

"Having not experienced a significant correction since March 2023, it is more sensitive to negative news due to high valuations," says Neelesh Surana, chief investment officer (CIO), Mirae Asset Investment Managers (India).

Held up by retail flows

Negative news from abroad (global growth concerns, wars, etc.) could affect the market in the near future.

Year-to-date, foreign portfolio investors are net buyers of Indian equities to the tune of 16,123 crore. But they are prone to sell Indian equities in large quantities.