Market correction a good time to rebalance portfolio: HDFC MF report

An HDFC Mutual Fund report advises investors to stay invested in equities and continue SIPs during the current market correction. It suggests using this as an opportunity to rebalance portfolios and increase equity allocation in a staggered manner.

Investors should remain invested in equities, continue systematic investment plans (SIPs), and use the ongoing market correction as an opportunity to rebalance portfolios, according to a report by HDFC Mutual Fund.

The report highlighted that the recent volatility and correction in equity markets have led to a moderation in valuations across segments, making it a favourable time for long-term investors to increase exposure in a staggered manner.

It stated, "Investors may maintain discipline by continuing SIPs and rebalancing portfolios. The current correction may be used to increase allocation to equities in a staggered way".

Valuations Moderate Amidst Correction

It noted that the Nifty 50 is now trading at a discount to its 10-year average based on 1-year forward price-to-earnings (PE), following the recent correction. While midcap and small-cap indices continue to trade at a premium, the gap has reduced significantly from the highs seen in September 2024.

Strategy for Investors: Discipline and Rebalancing

The report suggested that investors should maintain discipline in asset allocation. Due to the correction in equities, the allocation in many portfolios may have drifted below intended levels, creating an opportunity to rebalance by increasing equity exposure.

"Continuing SIPs during current times may be particularly beneficial, as it enables accumulation at relatively lower prices and improves long-term return potential through cost averaging," the report stated.

It further added that staying invested with a long-term perspective and periodically rebalancing portfolios can help investors navigate volatility and remain aligned with their financial goals.

Correction's Breadth and Depth

The report also pointed out that the current market correction has been broad-based. The Nifty 50 Index has declined by around 15 per cent from its recent peak, while broader indices such as the Nifty Midcap 150 Index and BSE Small Cap 250 Index have witnessed sharper corrections.

A deeper analysis revealed that the correction at the stock level has been more severe. While the Nifty Midcap 150 Index is down 15 per cent from its peak, around 43 per cent of its constituent stocks have fallen by over 30 per cent from their 52-week highs. Similarly, in the BSE Small Cap 250 Index, about 63 per cent of stocks have declined by more than 30 per cent from their 52-week highs.

Geopolitical Tensions and Long-Term Outlook

The report attributed the recent correction to heightened geopolitical tensions, which have increased market volatility and led to sharp declines across sectors and market capitalisation segments.

Despite the near-term uncertainty, the report emphasised that historical trends across past crises indicate that markets tend to recover over the longer term, supported by fundamentals and earnings growth. (ANI)

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