The extended slump marks a dramatic reversal for a market that seemed unstoppable just over a year ago, with the twin threats of technological disruption and military conflict creating a toxic cocktail that has left even seasoned investors questioning their playbooks.
Yet amid the wreckage, market strategists are delivering a counterintuitive message that this is precisely the wrong time to raise cash.
“We have reached a situation where prices and valuations have corrected drastically. All the headwinds of 2024 have become tailwinds and hence I would recommend investors to look at higher allocations to equity now,” Vaibhav Chugh, CEO at Abakkus Mutual Fund, told ET Markets.
Chugh urged aggressive deployment, recommending investors “go in with about 70% of investable surplus” into equities, supplemented by debt, foreign equity and gold to hedge against global volatility.
Santosh Meena, head of research at Swastika Investmart, echoed the bullish pivot: “The silver lining of the recent underperformance in Indian equities over the last year is that valuations have turned attractive, providing a margin of safety that didn’t exist previously.”
Meena warned against precisely what many investors are tempted to do now. “After a prolonged period of market underperformance and the recent price correction, raising cash levels now is counterproductive. High cash levels often lead to ‘missing the turn’ when the market bottoms.”Gaurav Bhandari, CEO of Monarch Networth Capital, advocated for a calibrated approach rather than market timing. “Raising excessive cash after a correction is often counterproductive. Instead, gradual deployment through staggered allocation into fundamentally strong businesses is a more prudent strategy.”
“Volatility compresses valuations faster than earnings, and this divergence creates selective opportunities,” Bhandari said, urging investors to focus on “quality, earnings visibility, and balance sheet strength” as the improving earnings outlook, particularly in domestic-facing sectors, suggests fundamentals remain intact despite near-term volatility.
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The Retail Investor Trap
All three strategists identified the same critical error plaguing retail investors during conflict-driven volatility: emotional decision-making at precisely the wrong moments.
“The biggest mistake retail investors make during conflict-driven volatility is reacting emotionally—either panic selling near lows or chasing sharp relief rallies without discipline,” Bhandari said. “Markets tend to discount worst-case scenarios quickly, and recoveries are often swift and sharp. Investors who exit in fear frequently struggle to reenter at the right levels.”
Meena described this as “panic-liquidation triggered by headline risk”, warning that “geopolitical conflicts create intense short-term noise that often has little impact on the long-term intrinsic value of domestic businesses. When investors sell based on breaking news, they often lock in losses at the exact moment of maximum pessimism.”
Chugh was equally blunt: “The biggest mistake is to go with the news flows rather than sticking to one’s asset allocation and diversification. The news flows during wars will drive investors away from markets or will try to convince investors to redeem out, which can be deterrent to long term wealth creation.”
Meena outlined specific themes to navigate the shift, advocating a “Growth-at-Reasonable-Price” approach targeting companies with robust earnings visibility and reasonable valuations.
His priority sectors include the AI & Data Infrastructure Nexus: “We are particularly bullish on the power sector and its ancillaries, which serve as the backbone for the burgeoning AI and data center demand.” He also likes selective pockets in pharma and healthcare. “Once geopolitical dust settles, financials and metals are well-positioned to resume their leadership roles.”
The strategists converged on one critical prescription: stick to a structured framework rather than reacting to volatility.
“A structured asset allocation framework, staggered buying, and a clear investment horizon of at least 3-5 years are critical,” Bhandari said. “Corrections should be viewed as phases of consolidation within longer-term growth cycles, not as reasons to abandon equity participation altogether.”
Meena advised investors to filter the noise and maintain discipline: “Revisit your original investment thesis. If the company’s 3-5 year growth story remains intact, the volatility is a market anomaly to be ignored (or exploited), not a signal to exit.”
Chugh emphasized diversification as the antidote to uncertainty: “Best way to ride volatility in uncertain times is to have all asset classes in the portfolio, which means proper diversification. There should be uncorrelated asset classes to reduce overall volatility.”
As India’s equity markets navigate their longest drought in recent memory, the message from the strategist community is clear: the playbook is being stress-tested and those who maintain discipline through the turbulence may find themselves best positioned when sentiment inevitably turns.