Stock market crash: Equity investors faced a terrible Thursday, greeted by a hawkish US Federal Reserve and Donald Trump’s unexpectedly higher tariff curveball. The Indian stock market crashed nearly 1% in early morning deals as investors scampered to take cover amid the double whammy.
US Fed outcome disappoints!
The US Federal Reserve held interest rates steady and did not signal any imminent rate cuts despite rising pressure from Trump. Fed Chair Jerome Powell was careful to keep his options open on monetary policy. “We have made no decisions about September,” he said in a press conference.
Moreover, Fed funds futures traders are pricing in a 46% probability of a rate cut by September, down from about 65% a day ago, according to the CME Group’s FedWatch Tool, reported Reuters.
This does not bode well for emerging market countries like India, as a higher US Fed rate makes us less appealing to foreign investors, who already have one foot out of the door. In July so far, foreign investors have offloaded stocks worth ₹17,578 crore, taking the YTD selling to ₹95,479 crore.
Trump tariff tantrum
Despite multiple rounds of discussion, Trump slapped 25% tariffs on India and warned of additional unspecified penalties for energy and defence-related purchases from Russia. According to analysts, it is very bad news for Indian exports and thereby on the growth prospects of the Indian economy in the short run.
How to tweak equity mutual fund portfolio?
Amid shifting market dynamics, the pertinent question remains: how should investors tweak their portfolios, and if holding cash would make for a prudent strategy?
Analysts believe that if you have adopted a goal-based investing for the long term, then you should not worry about the short-term turbulence.
Think long-term, avoid sectoral funds
Pankaj Mathpal, MD& CEO at Optima Money Managers, said equity funds are aligned for long-term goals, and fund managers keep making changes
based on the relevant information. “If investors also make changes, then it will not be the correct thing.”
He added that those investors who have invested for the long term need not worry. But at certain times, investors have also done some tactical allocation in a thematic or sectoral fund, and in that case, investors need to be a little cautious, advised Mathpal.
Jitendra Solanki, a SEBI-registered investment advisor, also advised steering clear of sectoral funds. He said that it’s difficult to gauge how a particular sector may perform, and investors who cannot track it regularly or lack the ability to understand factors influencing a particular sector should avoid taking such bets.
Stagger your investments
Solanki also advised against making any portfolio tweaks in case of a long-term investing view. For short-term investors, he advised scattering their investments rather than deploying all funds at once.
Don’t time the market, choose STP
According to Mathpal, nobody can time the market. “Many try, but different processes and outcomes come into play. If someone says they’ll sit on cash and only invest when the opportunity arises, the reality is—it often doesn’t happen. When markets correct, it’s hard to act. Professionals might deploy various strategies, but the average investor doesn’t usually have that level of insight or discipline.”
“That’s why my suggestion is to opt for an STP—Systematic Transfer Plan. If you have a lump sum, don’t invest it all at once. Instead, stagger it over time through an STP. A six-month STP, for example, allows you to average out the entry points. If a market dip comes during that time, you benefit from it. But if you just hold on to cash waiting for the ‘perfect’ dip, you may miss out,” he added.
It’s better to stay invested in a staggered manner through STP than to wait endlessly on the sidelines with cash, Mathpal advised.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
