Given the Sell Off in the Markets, I am Investing in...

If you're a cricket fan especially of the test format, you must have heard of former England test captain Joe Root and his incredible form lately.

Two weeks ago, the England crowd started chanting Rooooooott as the Englishman scored yet another century in the second test match against New Zealand and took his team over the line.

'He is a run machine' said former England captain Nasser Hussain when he was in the commentary box.

Relentless Root's brilliant form since the end of 2020 shows up across all of his batting statistics.

His average has increased, he is scoring more quickly, he has become more ruthless, and is converting his 50s into 100s easily now (this was a bummer for him earlier).

People are now taking his name before the prolific run-scorers Steve Smith, Kane Williamson and Virat Kohli, who are the best in the business when it comes to test cricket.

Some consistency, right? Root would be anyone's first choice in the current situation.

Looking at the way the Indian stock market is performing lately, investors are choosing the obvious choice of all - bluechips and largecap stocks.

But how do we know this?

Well, to understand what our readers are thinking, we ran a poll on Equitymaster's Telegram Channel over the weekend.

Here's what we asked our readers.

Given the sell off in the markets, I am starting to invest in... (Select one or more)

• Bluechip / Largecap stocks
• Midcap stocks
• Smallcap stocks
• Penny stocks
• I am not investing at this moment

With a response from over 1,300 participants, here is the final result:

This should come as no surprise.

Majority of the people, 48% to be precise, are starting to invest in bluechip stocks and largecap stocks in the recent sell off.

Turbulent times call for bluechips and largecap stocks to come to the rescue.

Bluest of the bluechips like Bajaj Finance, DMart, HDFC Bank, among others are the first preference these days.

Why? It's because these companies show a consistent increase in revenue and profitability over a long period.

These companies have clean accounts, prudent capital allocation, and strong competitive advantages, making them the perfect low-risk route to generating long term wealth.

The stock price of such companies' compounds over time as the market rewards them for their consistent performance.

The year 2022 has not spared them and most of these well-known companies are trading at sharp discounts from their 52-week high.

Coming back to the poll...

While many are starting to invest in bluechips and largecap stocks, a large chunk of investors are waiting on the sidelines...waiting for the stock markets to correct some more.

They feel the markets are extremely volatile these days and are not investing a single penny at this moment.

Moving on, we have 23% of the audience which is investing in mid-cap stocks while 15% are allocating their capital in small-cap stocks.

People investing in mid-cap stocks have their rationale laid out as today's mid-cap stocks can be tomorrow's Sensex heavyweights.

Mid-cap stocks can literally have the best of both worlds...quality and potential.

Same is the case for small-cap stocks. If you're on the lookout for the next Amazon, Titan or Bajaj Finserv, the right person will direct you to look at midcaps and especially small-cap stocks.

Also, people investing in the best small-cap stocks right now can reap in huge benefits as historically, small-cap stocks have outperformed during times of economic recovery.

At last, we have some risk takers among the group as well. Out of the 1,300 participants, 5% are taking on a lot of risk by investing in penny stocks.

The low interest is justified because penny stocks will be the most volatile lot in the current market scenario.

But despite having a poor reputation, few penny stocks can be the diamonds in the rough and can become future multibaggers.

The 5% who have started to invest in penny stocks should have a long term view in mind and only choose the fundamentally strong penny stocks if they dare.

Interesting results, right?

What should be your course of action?

As we're dealing with extreme volatility these days, it's always important to keep some money off the table rather than going all-in.

Who knows, it could potentially give you a better entry point to double down on your stocks in the near future.

So, instead of parking your total capital in one asset class or a single category of stocks, allocate small equal parts across the board periodically.

For more details, check out Equitymaster's Asset Allocation guide which highlights the various factors influencing asset allocation in equities.

While this period may seem like is a good opportunity to double down on your investments or even put some fresh funds in the market, you should keep your head on a swivel.

Remember that extreme times call for extreme measures. We don't know when the stock markets will recover so constantly revisit and re-evaluate your investment thesis. Ensure you are willing to change your mind when the information changes.

If you do this, your heart, mind and portfolio will thank you over the long run.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...