How to keep your portfolio in green even when market turns red: A blueprint from experts

The Indian benchmarks went back in the red on March 15 with mid and small-cap indices trading down. On the BSE, losing stocks outnumbered the gainers 2:1.

A combination of factors that undermined the investor sentiment over the last couple of weeks include liquidity tightness due to advance tax, AMFI cautioning mutual funds on inflows into small and midcap funds, ED raids on entities linked to hawala operator Hari Tibrewala, and Sebi warning of a froth in SME stocks.

For traders looking to place bets in this market, here are some tips from experts:

Avoid Trading High-Beta Stocks

Ruchit Jain, lead research at 5 Paisa, advises traders to avoid trading in high-beta stocks in such a volatile phase as it usually increases the risk. Focusing on low-beta names, which are generally defensive in nature, is a better approach, according to him.

Follow Strict Money Management Principles

“Money management is one of the most important parts of trading where cutting down losses (by following stop-loss) helps reduce any big drawdown. One should adhere to strict money management principles while trading,” Jain said.

Take In-the-Money Positions/Money Cross-Calendar Put Spread to Generate Alpha in Negative to Sideways Market

“When markets start to fall, most retailers tend to be caught on the wrong side of it. The best approach in this type of market is to take an ITM or in-the-money cross-calendar put spread. This will ensure that even if markets move further lower or sideways, you stay protected and make an alpha, but the best part is even if markets reverse, your loss is quite small,” said Rahul Ghose, CEO of Hedged.in.

As an example, Ghose explains, “In this current state of the market, buying ITM April puts and selling First week of April puts is ideal, so much so that there is a healthy gap in both strikes. The sold PE being closer expiry will expire much faster, and the bought put will ensure that your delta on the downside is efficient owing to the fact that it is ITM.”

Avoid Large Leverage Positions, Utilise Fall to Accumulate Fundamentally Strong Stocks in a Staggered Manner

“Amid cues of a volatile market, investors should avoid taking any large leveraged positions as during market weakness volatility increases and may lead to heavy mark-to-market losses in short-term trades,” Arun Kumar Mantri, founder of Mantri Finmart, said.

It is also always a good strategy to utilise the fall to accumulate fundamentally strong stocks in a staggered manner with a long-term view. It is also advisable to stay away from heavy trading positions at this time as the probability of the price movement on either side is very high.

When Market Turns Indecisive, Sit on the Sidelines, Protect Capital, and Look for Opportunities to Diversify Portfolio

Arun also suggests that whenever the market turns indecisive, traders should sit on the sidelines and investors should take the centre seat and have a close eye on the stocks approaching support levels for accumulation. “In our view, large-cap shares provide safety to the portfolio where midcaps are facing the heat, hence investment in small and mid-cap is to be kept at a minimum. We suggest investors diversify their portfolio and have investment in other asset classes like precious metals and the debt market.”

Stick to Your Exit Plans to Handle Drawdowns

“For long-term investors, market corrections are part of the journey; don’t let them bother you. Avoid tracking returns constantly. Research thoroughly before investing and stay firm. If you trade based on technical indicators, stick to your exit plans to manage drawdowns. Exiting loss-making positions early and waiting for stable market conditions for new opportunities is ideal,” said derivatives trader Amit Saraf.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions