How should investors navigate the current market volatility?

When the screen turns red, it is natural to wonder whether something has gone wrong at home.

By Feroze AzeezAnyone who has seen their portfolio turn red for several days in a row knows how difficult it can be to resist the urge to act and to put an end to the discomfort. The usual instinct is to step aside, wait for the uncertainty to pass and return when markets settle. It sounds like a sensible decision, until markets start recovering while you are still waiting for things to feel better. Ultimately, investors often end up facing a difficult choice which is to stay invested through the fall or to risk missing the recovery.The current market is putting that decision to the test as we see Nifty 50 down almost 6% over one month and 7.6% over one year. Nifty Midcap 150 has fallen 6% over one month, while Nifty Smallcap 250 is down around 3%. Yet, over six months, mid caps are up almost 11% and small caps have gained 22%. The market’s recent weakness follows a very different performance across market segments, making it difficult for investors to judge their portfolios by looking at the headline index alone.A market correction, not an economic collapseWhen the screen turns red, it is natural to wonder whether something has gone wrong at home. But the current market volatility we are seeing comes from a combination of external factors, rather than any domestic concerns. Geopolitical tensions, higher crude oil prices, rising bond yields and a weaker rupee have affected sentiment, while foreign investor selling has added to the decline. Higher oil prices are particularly relevant for India because they can increase the import bill, put pressure on the rupee and feed into inflation, potentially limiting the RBI’s room to ease interest rates.However, while these global forces act upon the country, it helps to look within, to see how India’s own growth story is playing out. India’s Q1 GDP growth was 7.8%, while FY27 growth is estimated at 7.2%. Direct tax collections have grown 23.1%, GST collections are up around 11% year to date, and government capital expenditure has increased by nearly 30% year to date. The market, in other words, is pricing the world today, while the Indian economy is pointing to India tomorrow.If we look at valuation, we find further comfort, with negative froth of over 16% in the market, as the top 10 stocks in the Nifty are now trading well below their historical valuation averages, even as earnings growth has been better than expected. Hence investors can have confidence that while the current situation is looking down, there is strong potential for a rebound over the next one year.Corrections are part of the investing experienceA fall of this size can be alarming, but if we look at the past, we can see that a fall of more than 10-15% in a year is a part of normal behaviour of equity markets. In fact, if we look at Nifty 50 for the last 20 years, it has experienced an average drawdown of around 19% every year, taking around 95 days to fall from peak to trough. Mid and small caps have seen even deeper falls of around 22% and 26%, respectively.Another key point for investors is that mid caps can be particularly vulnerable during these corrections as they see inflows from large cap, mid cap, small cap and diversified funds. When interest is strong, prices are supported, but if domestic flows weaken, several types of funds may reduce their exposure at the same time, adding to the pressure on mid cap stocks.After these falls, investors often overlook that a recovery has almost always followed, and a strong one at that. Nifty 50 took an average of around 1 year to recover its previous peak, and over the next 3 years, it delivered a return of around 20%. This puts the current decline into perspective for investors whose portfolios are in the red. By remaining invested through the correction, they are better positioned to participate in the eventual recovery.FPI Selling Meets Strong Domestic BuyingHeadlines about foreign money leaving can sound worrying, though the buyers on the other side of that trade matter just as much. While persistent selling by foreign investors has weighed on Indian markets over the past year, domestic investors have continued to provide support, helping cushion the impact of global outflows. In CY26, FPIs have sold Rs 2.45 lakh crore worth of equities, while domestic investors have invested Rs 6.2 lakh crore into the markets. Monthly mutual fund SIP inflows have also remained around Rs 30,000 crore or higher, reflecting the continued participation of Indian investors regardless of market conditions.Global capital may move out of India in response to changing conditions, but the country’s underlying growth story does not change overnight.What should investors do now?The natural question for investors at this point is what to do next. Sticking to their long term strategy is the best course of action, even when it takes real patience. Investors should also remember that the discomfort of waiting is a normal part of investing and not a sign of a wrong decision. With the market already down around 13% from its peak, we can say that a major part of the correction may well be behind, and the outlook from here points towards an eventual recoveryFor investors with surplus funds, this could be a good opportunity to deploy them, top up SIPs and continue investing. Reviewing and rebalancing portfolios is equally important to ensure they remain aligned with financial goals. The key is to stay invested, avoid panic and give investments the time to participate in the growth that lies ahead.(The author is Feroze Azeez, Joint CEO, Anand Rathi Wealth Limited)(Disclaimer: Recommendations and views on the stock market, or any other asset classes or personal finance management tips given by experts and analysts are their own. These opinions do not represent the views of The Times of India.)