How to Invest in Stocks During a Market Crash?

by Asha Ritu

In the last one month amid the coronavirus pandemic, we have seen a large fall in the equity markets around the world. According to the Asian Development Bank (ADB), India’s economic growth rate will slip to 4 percent in the current fiscal on account of the global health emergency created by the coronavirus pandemic. India’s stock market capped its worst quarter on record at the end of March, with the Sensex index sliding 29 percent, according to Bloomberg.

The stock markets are expected to remain turbulent for some more time. It could dip further before regaining stability. It’s natural to feel skeptical and uncertain with respect to your investments, during such a situation.

Therefore, we’ve put together some suggestions from financial experts on how to invest in stocks during a market crash. Read on to understand the current stock market and how to proceed with your investment journey.

Things to Remember Before Investing in Stocks During a Market Crash?

  1. If your money is already invested in the stock market (before crash), let it idle. Do not think of selling them in panic. Let the market recover and then decide if you still want to sell or hold on to them.
  2. If you have mutual fund SIPs, you can increase the investment amounts. If you had missed opportunities to enter HDFC, Kotak Mahindra, Infosys or Hero Motors, you could consider buying into those stocks at current prices.
  3. Try investing in small-cap or mid-cap mutual funds. Starting an SIP (Systematic Investment Plan) in such funds, till the market is tumbling down, can be a great investment strategy.
  4. If you want to take the risk of investing in direct stocks, then you could opt for the mutual fund route.
  5. It’s advisable to diversify your investment portfolio. You can have 10-15% of a portfolio's allocation in the gold asset class. Gold is negatively correlated to equities. It performs exceptionally well during stock market crashes.

As an investor, you should always brace yourself for sudden volatility in the market. It's the nature of the markets to move up and down over the short-term. Trying to time the market is extremely difficult. One solution is to maintain a long-term horizon and ignore the short-term fluctuations. Just don’t sell your stocks in these situations without research as this can be a hindrance while re-entering the market and buying again. As a result, you will end up losing more in the long run, if you miss vital market gains in the shorter term.

Additionally, if you’re wondering what stocks to invest in right now, here’s a good read: Macquarie’s Top 10 Stock Picks In India Amid Market Turmoil.

Happy Investing!