The Indian equity market has recently experienced significant volatility, leaving investors anxious about their investments. Benchmark indices like the Nifty 50 and S&P BSE Sensex have dropped by 10-11% from their record highs in September 2024.
The mid-cap and small-cap segments have been hit the hardest, facing severe selling pressure. This decline is due to global and domestic factors, including global trade tensions, inflation concerns, and fears of an economic slowdown. High valuations in these segments have also contributed to the sell-off.
As of February 14, 2025, the BSE Small Cap Index and BSE Mid Cap Index have fallen by 18.3% and 17.9%, respectively. This sharp decline has left many retail investors questioning whether they should stay invested in mutual funds, particularly those exposed to mid-cap and small-cap categories.
Foreign investors have become more risk-averse due to rising US bond yields and concerns over a global economic slowdown, leading to significant outflows from Indian equities. Additionally, geopolitical tensions and fluctuating crude oil prices have added to market volatility. Domestically, worries about corporate earnings growth and stretched valuations in mid and small-caps have further impacted investor sentiment.
In this article, we explore the reasons behind the market‘s volatility, its impact on mutual fund investments, and the best strategies to navigate this turbulent phase. Bottom of Form
Understanding the Recent Market Volatility
Amid this market chaos, the India VIX, which measures market volatility also known as the fear gauge, has surged to its highest levels in recent months, reflecting the prevailing fear and uncertainty among investors.
A high VIX generally indicates increased market fluctuations and jittery investor sentiment, adding to the anxiety of those heavily invested in equities. The sudden and steep corrections have not only impacted direct equity investors but also those who have invested in equity mutual funds, especially mid-cap and small-cap funds.
Market turbulence, as reflected in the India VIX, could stem from various factors including economic policy changes, global financial crises, geopolitical events, and shifts in investor behaviour. For instance, the spike in 2022 could be associated with global inflationary pressures, the Russia-Ukraine conflict, and its impact on commodity prices. Similarly, any volatility observed in 2024 could be linked to events such as election outcomes,
» Read More
