How to deal with volatile Sensex

Go defensive. That's the mantra chanted by pundits these days as they grapple with the waywardness of the market. They are advocating a slew of measures to their clients: Hedge one's portfolio through derivatives, get into the defensive sectors like pharma and FMCG, invest in gold. However, most investment experts believe such strategies are best left to institutions and retail investors shouldn't try to follow market fads and lose an opportunity to make money.

‘‘It is extremely difficult to take a call on the future course of the market due to uncertainties in the global economy. Even situation in the domestic economy looks fluid after the Budget. Government's huge borrowing programme, scanty monsoon... There are many uncertainties . That is why we have been telling our clients to adopt a defensive investment strategy,'' says a wealth manager who doesn't want to be identified. ‘‘ We have been telling our clients to get into defensive sectors like pharma and FMCG. We are also asking people to invest in gold as it is a perfect hedging mechanism against uncertainties in the economy,'' he adds.

However, investment experts believe that though such a strategy makes perfect sense, retail investors shouldn't pay any heed to market fads which come in vogue from time to time. ‘‘ People think of defensive strategies when they can't take a call on the future course of the market. But I would advise individual investors not to get caught up with such theories,'' says Amit Trivedi, a financial trainer. ‘‘ These kind of strategies are suited for large institutions. Retail investors should concentrate on making money. If they change their investment strategy very often depending on market conditions, they would lose opportunities to make money,'' says Gul Tekchandani, an investment expert.

Both of them believe that individual investors don't have the wherewithal or time to monitor the market on a daily basis and take remedial measures. ‘‘ Individual investors should concentrate on their occupation, as that is where they earn their wealth from. The investment is just a complimentary process and they should keep their investment strategy very simple,'' says Trivedi. ‘‘ A large institution will have the resources to monitor the investment climate continuously . But most individuals won't have the capacity to do it. Individuals can only react to a news. That is why they are reactive and rather than proactive,'' he adds.

Trivedi suggests that individuals should always try to diversify their portfolio so that they are not at the mercy of any one particular sector. ‘‘ It is a simple strategy that would work for individuals ,'' he says. ‘‘ Only the classic strategy of buy and hold would work in this market . There are many opportunities and investors should use the correction in the market to buy quality stocks and hold them,'' says Tekchandani.