As markets weaken, what should be your next step?

Stock market correction is generally perceived to be the time for fresh entry or buying more stocks. Right? It is not only seasoned investors, even the inexperienced ones try their best to time the market. Timing the market is basically making an assessment as to when the market is at its lowest point and is poised for a turnaround. It is a different matter that the market has always rewarded those who spend a long time in the market rather than trying to time it.

Can you time the market this fiscal year? The reality is that even the most seasoned investors fail to time the market. More money has been washed out in trying to time the market than the amount of money made. In his book, ‘The Illusion of Control’, Jon Danielsson mocks the attempts to measure and predict the risk and time the market. Calling it ‘risk theatre’ rather than a credible analysis, he maintains that to properly assess risk, we need to recognise that different investors care about different things, depending on their level of exposure and time horizon. Such accuracy looks impressive but bears little correlation to reality.

That said, any market correction at the beginning of a new fiscal year is generally seen as an opportunity for making a fresh entry. This is also the time when businesses close their annual accounts and can assess how much of the profits they can invest. The salaried class also gets to know the increment and starts assessing the cash in hand to invest. And everyone within the built environment of finance knows that corporate earnings start improving by the third and fourth quarters of a given fiscal year.

It is, hence, no surprise that across the spectrum of personal finance, the questions being asked today are:

• Is the low point of the stock market at the beginning of the 2025-26 financial year an opportunity to buy?
• Should I enter the stock market now or wait for more correction?
• Has real estate reached an era of time correction?
• Has gold reached its peak price point or will it attain a fresh high?
• Which asset class would give the best returns in this financial year?
• How do I evaluate my risk-reward ratio?

These questions are relevant not just this time, but every time. It is intrinsically wired into the human mind to try to time the market and get the best returns. But the fiscal year 2025-26 promises to be different. It is a year when more than whether or not you can time the market, the question that is more relevant is whether you can afford the market. Not many can afford to buy in today’s market; at least not those who are not reckless with money and gamble on every tip here and there.

Gauging the outlook

The macro-economic outlook of India is bleak and money management of a large share of Indians exposes their risk profile. The average household in the country is today in a debt trap. Some economists even believe that there is no middle class left in the country, where 95 per cent of the population has absolutely no spending power. In the wealth hierarchy of India, a meagre 1 per cent rich are followed by relative poverty and absolute poverty. So, you have to assess your finances with a rational and not an emotional mind.

Facts speak for themselves

• The RBI has sounded alarm bells against the rise in unsecured loans and has called it high credit risk.
• The RBI has given a stern warning of action against lenders who follow irregular gold loan practices.
• The Central bank has raised serious concerns over the surge in unsecured borrowing and speculative trading in derivatives, calling it
• worrying sign of “euphoria” in capital markets.
• Retail loan has increased from 4 per cent to 11 per cent.
• 67 per cent of the middle class has taken personal loans, the most expensive and tricky loan.
• 25 per cent of the middle class has taken both credit card and retail loans.
• The growth of Demat accounts has slowed down; accounts are also getting closed.
• 45 per cent borrowers in India are sub-prime borrowers.
• 48 per cent of this sub-prime loan is for consumption.
• Credit and retail loans are at a 10-year high.

With a not-so-rosy economic outlook, where many economists believe recession (or a prolonged spell of slowdown) is looming ahead, what should an average salaried person do? Should he take advantage of the stock market correction? Should one step up the SIP for sizeable returns in future? Most of these personal finance questions are aspirational, that also overlook the much-needed financial safety.

An average investor must keep in mind that stock market is a function of profitability. India’s corporate earnings are going down; domestic consumption has significantly slowed down; private investment is not happening; and geo-political developments are not favourable.

It is hence no surprise that the FIIs (Foreign Institutional Investors) are also deserting the Indian market for greener pastures.

Personal finance tips

• The sound advice in today’s economic outlook at the beginning of the fiscal year is to be debt-free. If at

  all you have a debt, then evaluate whether your debt is leverage or liability. If you are earning more with the borrowed money than the interest being paid, then it is leverage. However, investing with borrowed money, whatsoever you may be earning, is a recipe for disaster.

• Post-Covid, stock market gains have lured many middle class Indians to gamble in the stock market with borrowed money. Many have already paid the price with the market going down since September 2024. The RBI, too, has warned against speculative gambling with borrowed money.

What is needed

• Assess your net worth; calculate assets minus liability.
• Get rid of debt trap; leverage your loans and get rid of liability.
• Have an emergency fund, term insurance, and health insurance.
• Stock market investment should be with surplus capital and for a minimum period of three years.
• In terms of asset allocation, don’t put more than 40 per cent in the stock market.
• Last, but not the least, don’t get swayed by the FOMO (Fear of Missing Out) factor when the stock market, real estate or gold prices start going up.
• Similarly, not every market correction is the time for putting more money if it disturbs the balance of your portfolio allocation.

— The writer is CEO, Track2Realty