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Volatile markets are for those who do not fear to swim through troubled waters. Market experts say these are days when prices fluctuate so much and so frequently that it becomes difficult for the lay investor to fathom the depths that he can plunge to or the heights that he can touch in one or a few trading sessions.
Monday, August 24, 2015, was one such day when the stock markets eroded over ₹7 lakh crore of investor wealth in a single day. The country’s volatility index VIX fluctuated the highest that day — at 64.36 per cent to close at 28.1300.
It is all about spotting value buys, say those in the street. Paras Bothra, VP — Equity Research, Ashika Stock Broking, says, “The textbook tells you that you get good bargains. For that to happen, you need to have a thorough understanding of fundamentals — that is, how does one perceive value and at what price, besides the fact that one gets swayed by macros or not. Negative macros look more compelling than positive. One has to spot value by himself as it lies in the eyes of the beholder.”
Deciding to take on volatility depends on whether one is already invested in the market. Arun Kejriwal, Founder, KRIS Research, says, “When markets fall sharply, a person already invested should not panic, simply because they bounce back in a couple of days. The same was seen last week. For those looking to invest, sharp dips are an opportunity but momentum stocks should be avoided.”
Hedge cautiously One should also be very careful while hedging in a volatile environment. Siddarth Bhamre, Head — Derivatives, Angel Broking, says, “People with existing positions should totally hedge by buying put options only if the volatility is at the higher end of the levels (for example 8,500) seen in the last couple of years. If the volatility is at the lower end of the levels seen in the last couple of years (for example about 6,600-6,800), hedging might not be required at all. One should understand that hedging is not done for a day but for a substantial downside.”
“For those do not have a position it is better to stick to indices and large-caps and avoid mid-caps because it is very difficult to ascertain their exact downside,” concludes Bhamre.
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