Investing in BSE 500 During Economic Downturns: Defensive Strategies
The BSE 500 are spread over different sectors making it an ideal index for representation of the Indian market. However, investing in the BSE 500 during an economic downturn can be challenging, and can impact investors’ pockets. Hence to navigate through them, one can take the help of defensive strategies.
In this blog, we’ll discuss how defensive strategies can help investing in the BSE 500 companies during economic downturns.
Defensive strategies for investing in BSE 500
In February, while the Sensex showed moderate returns, the BSE 500 index recorded double-digit gains, with certain stocks reaching above 32%. As of May ’24 BSE 500 share price stands above 33,000, with a 52-week high of 33,381.68, and a low of 24,250.39.
To invest in the BSE 500, you need defensive investment strategies to lower your overall risk. Some well-known strategies that you can use while investing in BSE 500 are as follows –
Diversification
Investing in the BSE 500 provides diverse options across sectors such as IT, healthcare, and banking, thus reducing the impact of one sector’s poor performance on another.
Yet, during an economic downturn, it’s important to rebalance your portfolio based on the market condition and include stocks that do not get impacted by economic downturns like FMCG, healthcare, etc.
Defensive / Value Stocks
During tough times, certain stocks do very well but often go unnoticed. These include companies selling everyday essentials products like toiletries, or companies providing vital services like car-servicing. Their stocks tend to stay steady even in downturns. As their stocks aren’t hyped up, they often tend to be undervalued, meaning they have less risk when the market is down.
In the BSE 500, you can look into sectors like utilities, healthcare, and possibly energy, which have a history of doing well even during bear markets.
Rupee Cost Averaging
Rupee cost averaging (RCA) is a smart way to invest steadily, no matter how the market behaves. Here you invest a fixed amount regularly every month, without worrying if the market is up or down. In this type of investing you buy more units of a mutual fund when its price is low and fewer when it’s high. Over time, this evens out the average price per unit. So, even if the market moves in different directions, your investment’s volatility doesn’t increase.
In the context of the BSE 500, RCA can be a reliable strategy for investing in Mutual Funds that track this index.
Avoid Short-term Exit
During an economic downturn, it is crucial to resist panic selling as you can lose on your investments. Instead, you can focus on strategies like understanding your investments, diversifying your portfolio, and holding a long-term perspective. Buying more stocks during downturns can be a beneficial option.
In the context of the BSE 500 avoid quick exits and consider investing in sectors like consumer staples which tend to remain stable over time.
Conclusion
Overall, a defensive investment strategy aims to minimise risk during economic downturns. By adopting the above-mentioned strategies, investors can safeguard their investments in the BSE 500. These strategies help mitigate losses and maintain stability in the face of market volatility. To invest in BSE 500, consider opening an account with Dhan.