Indian stock market is sinking. What should mutual fund investors do?

Indian stock market witnessed a bloodbath today (April 7).

The Sensex dropped over 2,000 points today to close at 73,137.90, while the Nifty plunged nearly 750 points to end at 22,161.60.

This development comes amid a number of stock markets in Asia and Europe witnessed huge falls as a result of US President Donald Trump’s tariffs.

But what happened? And what should mutual fund investors do as the market sinks?

Let’s take a closer look

What happened?

Stock markets crumbled on Monday with benchmark Sensex sinking by 2,226.79 points – its steepest single-day decline in 10 months – as a global market carnage following US President Donald Trump’s tariff hikes and retaliation from China fanned fears of economic slowdown.

The 30-share BSE Sensex crashed 2,226.79 points or 2.95 per cent to settle at 73,137.90, recording its third day of decline. During the day, the index slumped 3,939.68 points or 5.22 per cent to 71,425.01.

The NSE Nifty tumbled 742.85 points or 3.24 per cent to settle at 22,161.60. Intra-day, the benchmark dropped 1,160.8 points or 5.06 per cent to 21,743.65.

All Sensex shares, except for Hindustan Unilever, ended with losses. Tata Steel fell the most by 7.33 per cent followed by Larsen & Toubro which cracked 5.78 per cent.

Tata Motors, Kotak Mahindra Bank, Mahindra & Mahindra, Infosys, Axis Bank, ICICI Bank, HCL Technologies and HDFC Bank were the other big laggards.

Hindustan Unilever ended marginally higher.

“The market tumbled as the carnage over high US tariffs and the retaliation by other countries may kickstart a trade war. Sectors like IT and metals have underperformed relative to the broader market due to the risk of high inflation with slower growth that may result in a potential recession in the US,” Vinod Nair, Head of Research, Geojit Investments Limited, said.

In Asian markets, Hong Kong’s Hang Seng index tanked more than 13 per cent, Tokyo’s Nikkei 225 plunged nearly 8 per cent, Shanghai SSE Composite index dropped over 7 per cent and South Korea’s Kospi sank over 5 per cent.

European markets too came under heavy selling pressure and were trading with up to 6 per cent decline.

What should mutual fund investors do?

Experts say they should, above all, not panic.

“The Indian economy is primarily domestic driven, with exports constituting a small portion of GDP, making it less susceptible to global trade disruptions. Recent concerns about the US growth have triggered capital outflows from the US and a depreciating dollar, making India a more attractive destination for inflows,” Axis Mutual Fund was quoted as saying by Moneycontrol.

They say certain sectors might be worth buying at lower levels.

Kunal Valia, founder, StatLane, told the outlet, “During this accumulation phase, investors may focus on stocks across various sectors, with an emphasis on those driven by domestic demand. However, we believe that a prolonged correction in externally dependent sectors presents attractive opportunities, particularly in the IT and chemicals sectors.”

They suggest continuing SIPs.

S Naren, executive director and chief investment officer (CIO) at ICICI Prudential Mutual Fund, told Business Standard, “Investors should continue with their systematic investment plans (SIPs), especially during market corrections. For those looking to start new SIPs, beginning with large-cap funds is a prudent strategy, followed by flexi-cap and value-oriented approaches.”

Naren suggested that India is in a relatively strong situation compared to others.

“India is well-positioned macro-economically, with fiscal deficit, current account deficit, and inflation under control. The key concern over the past 18 months has been elevated equity valuations. With the recent correction, large-caps are now only marginally overvalued as per our models, while small-and midcaps continue to be expensive. Another positive for India is that it’s largely a domestic-driven economy, unlike many export-oriented markets.”

Preeti Zende, founder of Apna Dhan Financial Services, agreed.

She told Mint, “If you are investing in equity mutual funds towards your long-term goals, it is the best time to continue your SIPs to get more units in market correction. This helps you to increase portfolio value once the market starts recovering.”

They say investors should look at safer options.

“Investors should invest in large-cap and multi-cap funds. Also, if someone wants to invest in a thematic fund, they can explore banking and financial services as a sector,” Sridharan Sundaram, founder of Wealth Ladder Direct, suggested.

Siddharth Alok, AVP, Investments, Epsilon Money, added, “History suggests that after a 15-20 percent fall, future returns are typically decent. We must understand that buying when the prices are low could mean picking up quality assets at a discount, especially if you’re in it for the long haul.”

Sundaram suggested re-examining your portfolio.

“If the equity-to-debt ratio is supposed to be 70-30 and after the decline in the market, it has changed to 60-40, then it is the right time for investors to re-allocate this ratio back to 70-30,” explained Sundaram.

But others struck a note of caution.

“For mutual fund investors invested in sector-specific, factor-based or thematic mutual funds, it’s advisable to exit or reduce your allocation in these areas. When the market recovers, it may take some time for the performance of these sectors to improve. Instead, consider reallocating your funds into flexi-cap funds, particularly those focused on large-cap stocks. If you have a significant investment in mid-cap and small-cap funds, it’s also time to reduce those holdings,” said Anand K Rathi, co-founder of MIRA Money.

US markets ended sharply lower on Friday. The S&P 500 dropped 5.97 per cent, Nasdaq composite slumped 5.82 per cent and the Dow tumbled 5.50 per cent on Friday.

On June 4 last year, the Sensex nosedived 4,389.73 points or 5.74 per cent to close at 72,079.05. In the day trade, the barometer tanked 6,234.35 points or 8.15 per cent to 70,234.43.

The Nifty ended at 21,884.50, a sharp decline of 1,379.40 points or 5.93 per cent on June 4, 2024. Intra-day it tumbled 1,982.45 points or 8.52 per cent to 21,281.45.

Sensex and Nifty had previously declined by over 13 per cent on March 23, 2020 when lockdown was imposed due to the COVID-19 pandemic.

On Monday, the BSE smallcap gauge cracked 4.13 per cent, and the midcap index tanked 3.46 per cent.

All BSE sectoral indices ended with deep cuts. Metal tumbled 6.22 per cent, realty dropped 5.69 per cent, commodities (4.68 per cent), industrials (4.57 per cent), consumer discretionary (3.79 per cent), auto (3.77 per cent), bankex (3.37 per cent), IT (2.92 per cent), teck (2.85 per cent) and BSE Focused IT (2.63 per cent).

“Though the overall impact on India may be limited when compared with other countries, investors are advised to play cautiously during this fray,” Nair said.

Foreign Institutional Investors (FIIs) offloaded equities worth Rs 3,483.98 crore on Friday, according to exchange data.

Global oil benchmark Brent crude dropped 3.61 per cent to USD 63.21 a barrel.

Last week, the Sensex tanked 2,050.23 points or 2.64 per cent, while the NSE Nifty declined 614.8 points or 2.61 per cent.

With inputs from agencies