What should investors do in a volatile stock market?

The global equities have witnessed sharp volatility in the recent past due to a slew of factors such as hawkish policy stance by central banks across the globe, record rise in crude price, and escalating tensions between Russia and Ukraine. Globally, rising inflationary concerns and geopolitical tensions have led to risk aversion among investors leading to sharp fall in equity markets across the globe. For Indian markets, rising crude oil prices and continuous selling by foreign institutional investors is leading to rising volatility, according to analysts at ICICI Securities.

The Indian benchmarks slumped nearly 5% on Thursday after Russia launched a full-scale invasion of Ukraine. Investors lost ₹13.44 lakh crore in wealth as the market capitalisation of BSE-listed companies dropped to ₹242.24 lakh crore from Wednesday's ₹255.68 lakh crore mark.

In a sharp turn of events, the BSE Sensex and NSE Nifty rebounded nearly 3% today, following firm cues from Asian peers and strong finish at Wall Street overnight after the U.S. and other Western countries imposed harsh new sanctions against Russia.

The high volatility has made investors nervous, especially those who are facing a full-blown bear market for the first time.

"Selling during a crisis had never been a good decision. Therefore, investors should not panic and sell. Even though the situation is fluid, this is unlikely to become a prolonged hot conflict. Investors should not panic and sell their bluechip stocks. They can churn portfolios by selling weak stocks and buying high quality stocks in IT and financials,” says V.K. Vijayakumar, chief investment strategist at Geojit Financial Services.

“If the crisis degenerates into a hot conflict, which is unlikely, the market can correct by another 5% from here. But the likely scenario is the market consolidating around the present levels and individual stocks rising from their present levels,” he adds.

As the situation remains fluid, he recommended investors to remain cautious and vigilant. “For long-term investors who can ignore the short-term gyrations in the market, there are buying opportunities in high-quality stocks that have corrected significantly. Financials, IT and real estate stocks have the potential to bounce back smartly in a favorable environment," he further stated.