First-time investor? Here’s how to cope with the market downturn

medium120069410Red is a colour that appears to have scarred Kashika Saxena, a 35-year-old multinational executive based in Mumbai. That’s the colour that dominates her portfolio every time she opens up the trading app on her mobile phone. As the S&P BSE Sensex touched its all-time peak on September 26, 2024, at 85,836.12 points, Saxena started buying equity shares for the first time. From that day till March 3, the Sensex has fallen by more than 15%.“It’s depressing to see my portfolio. I have been losing money ever since I started investing,” says Saxena. Since May 2021, she has been investing in equity mutual funds. Last year, aiming to accelerate her path to early retirement, a goal common among many young investors, she ventured into purchasing individual stocks, motivated by the enticing, rising markets.She’s not alone. Since the Covid pandemic, scores of young investors have entered the equity markets. With salary cuts and job losses impacting many during that time, a new wave of local investors turned to equities in search of better returns that pushed the equity markets up. The work-from-home trend also led many retail investors to buy shares and mutual funds, which in turn attracted more investors — mostly young and first-time participants. ET Wealth spoke to several first-time investors to understand what they have been doing and how they are coping with the market downturn. medium120066675First salaries, bad timingWhile Saxena procrastinated in her investing plan, others like New Delhi-based Tamanna Kapil Mehta, 24, didn’t have time on her side. Mehta got her first job in May 2024 and debuted in equity markets in August. She began investing through mutual funds, selecting a large-cap fund, a hybrid fund and two index funds.Mehta checked the right boxes. She chose conservative funds, focusing on saving for contingencies and emergencies. She opted for the MF route because she wanted diversification, even though many of her friends and colleagues bought stocks directly. She began investing after receiving her initial salaries, but unfortunately faced a market downturn after September 2024.Mehta wonders if she has made the right decision by opting for MFs, instead of direct equities, but acknowledges, “I have always heard that you cannot have a short-term view on investments. I think you have to look at the longer-term picture. A loss is worrying, but you look at it in a couple of years, not every month.” medium120066702Chasing performanceNithin Kamath, CEO of Zerodha, India’s largest online brokerage, observes that while small and young first-time investors aren’t as impacted by market downturns, larger investors have experienced significant portfolio drawdowns, leading to increased stoppages in systematic investment plans (SIPs) within this group. However, there’s a problem many first-time investors, such as Saxena and Mehta, face.“They are not inclined towards hybrid or debt funds. They are interested in equity mainly,” says Kamath. Further, he says, those first-timers who buy stocks, tend to concentrate their portfolio with just three-four stocks. “When you directly buy equity shares, you should buy shares of at least seven-eight unrelated companies,” says Kamath.The bigger issue, however, lies in investor behaviour. Kirtan Shah, founder and CEO, Credence Wealth, points out that many first-time equity investors enter the market chasing past performance, which leads to unrealistic expectations. An analysis of inflows and outflows of mutual funds shows that small-cap and mid-cap funds collected (net inflows) around ₹16,500 crore and ₹18,600 crore, respectively, between January and August 2024. These are among the riskiest. Net inflows mean more money came in than went out.Large-cap funds, among the least volatile of equity funds, collected (net inflows) just around ₹9,600 crore. “Sector funds focused on defence and PSUs (public sector undertakings) got a lot of money because these funds had been doing well. However, since information technology and pharmaceutical funds weren’t doing as well, they didn’t attract much money,” adds Shah.Mumbai-based Taral Shah, 43, began investing in mutual fund SIPs in 2013. Being a jewellery manufacturer, he was familiar with gold and had been regularly investing in it. His understanding of gold led him to diversify his portfolio by adding equities. In 2019, he felt that investing directly in the equity markets could deliver better returns. He began buying shares worth around ₹10,000 each month, and today, his monthly investment in direct equities has grown to ₹40,000. His mutual fund SIPs continue unchanged. “There was so much positivity around India’s growth story back then. I didn’t believe anything would go wrong,” says Shah, who now regrets not increasing his SIP contributions. medium120066712 medium120066727Changing timesNot all is lost, says Aashish Somaiyaa, CEO, WhiteOak Capital Management. He says that investors have become smarter over the years. “Today, there’s a better understanding of the stock markets and a greater tolerance for risk. Twenty years ago, if a young investor had lost money in equity markets, it would have been considered a tragedy. Now, people appreciate equity markets better,” he says.Meet Bengaluru-based professor Malathi Ramakrishna, 43, a senior manager at REVA University, where she heads the innovation and incubation cell. She entered the equity markets for the first time in March 2024. Driven by a desire to take charge of her finances, she grew curious about how equity markets work. Until then, she had been parking her salary in a savings account and occasionally investing in fixed deposits. She chose to get help and enlisted a registered investment adviser, who now helps her with her financial planning and investments. Malathi is happy and has used this market correction to do tax loss harvesting, a practice that entails selling securities at a loss, to help reduce or offset taxes on capital gains income subject to taxation.Shaurya Toshniwal, 27, from Hapur, a small town in Uttar Pradesh, began investing in direct equities in May 2020 after landing his first job. A year later, with guidance from his sister, an accomplished mutual fund distributor, he started investing in mutual funds. In May 2021, he also invested in sovereign gold bonds, a move that earned him healthy returns. Toshniwal regrets that he ignored debt funds, which would have cushioned his portfolio’s fall. His big lesson: “Book profits, if you invest directly by buying equity shares. If the company’s price is overvalued, it’s crucial to sell.” medium120066745The path aheadSome experts suggest that first-time investors stuck in these falling markets should use the opportunity to buy more stocks or funds and average out their cost price. Others like Radhika Gupta, MD & CEO, Edelweiss Asset Management, say that doing nothing is often a better option. “There is no need to push first-time investors to do things like ‘averaging out’. Why bother? Just survival is enough. Sit through the storm and let’s come out of it,” she says.Do not stop your SIPs. An ET Wealth analysis shows that SIPs started at market peaks eventually turn around and reward those who stay invested.“Avoid social media platforms for investment advice,” says Anand K Rathi, co-founder, MIRA Money, an online MF distribution platform that offers baskets of MF schemes as per your financial goals and requirements. Rathi says that many first-time investors have burnt their fingers by falling for false narratives that mislead into believing equity markets can never fall.Last, but not the least, fix financial goals, and then invest. Experts suggest that it’s best to invest keeping a financial goal in mind, rather than just aiming at higher returns. medium120066763 medium120066770