Fund manager insights: Rajat Chandak on the risk you can't ignore in 2026, how to invest and more

For investors, market volatility has become a constant, with sharp declines frequently occurring after strong rises. This can make choosing stocks or funds and building a portfolio particularly difficult for novice investors.

Irrespective of the market environment, when looking at companies, the focus is always on balance sheet strength, cash flow visibility, management quality, and the ability of a company to protect margins when demand is uneven.

How a company treats customers, suppliers, employees, and minority shareholders during challenging phases often reveals the leadership quality of the company. Over the years, we have seen that businesses that remain disciplined during volatile times usually emerge stronger when conditions stabilise.

The core investment approach remains rooted in bottom-up research. Higher retail participation, especially in the mid and small-cap companies, over the past few years has at times pushed valuations in certain pockets well ahead of their fundamentals. As a result, one has to be very selective.

The emphasis at all times remains on understanding businesses and staying invested only where there is comfort in terms of valuation, governance, and long-term earnings visibility.

Our experience over the years has shown that when prices move faster than earnings growth, the margin of safety reduces considerably. Over a complete market cycle, this can lead to suboptimal outcomes.

So, staying disciplined on valuations and being willing to wait for better entry points is essential for a good investment experience as well as in managing risk.

We believe the impact of global volatility remains one of the most underestimated risks. Even though India’s economy is largely domestically driven, global developments in terms of trade-related tensions, policy uncertainty in the US, or a slowdown in global growth can affect sentiment and consequently, capital flows into India.

Another risk is the demand recovery trajectory. Typically, markets tend to price in optimism early, and hence any delay in demand and earnings growth can dampen the market sentiment.

One common mistake a new investor tends to make during the bull market is equating rising prices with low risk. This often leads to overexposure to a single sector/theme. Another is ignoring liquidity and volatility risks, especially in mid and small-cap names.

Given that every investor’s risk profile and financial background is unique, it is best to seek guidance from a financial advisor.

However, since retirement and children’s education are long-term goals, investors can consider equity offerings as, over the long term, the impact of market volatility tends to smooth out.

Investors can consider diversified equity offerings like the flexi-cap, which has the flexibility to invest across market capitalisation for this requirement.

However, what matters most here is one’s investing discipline. It is important not to be influenced by short term market movements but rather be focused on the end goal.

Adhering to asset allocation at all times is the principle every investor should abide by. It is important to acknowledge that the winning asset class will change every year, and there is no way one can predict it.

Hence, what investors can do best is to diversify investments across equity, debt, commodities, REITs, etc.

The reason why this approach works is that even if one asset class were to underperform, the gains of the winning asset class can lend support and the overall portfolio downside gets contained.

We believe consumption-oriented sectors remain structurally important. While demand has been uneven in recent quarters, factors such as policy support, income tax relief, and improving rural and urban demand conditions can aid recovery over time.

From a cycle perspective, parts of the consumption basket offer relatively better visibility compared to segments where valuations have already factored in strong growth assumptions. This makes consumption an area to watch out for from a medium to long term perspective.

Investors should be cognizant of valuation risk. In pockets where markets have delivered strong returns, froth tends to build up. Any shift in global liquidity, risk appetite, or earnings momentum can weigh in on these excesses, leading to a correction.

When investing in a mutual fund, choose products that are aligned with one’s risk profile, financial goal and remain invested with a long-term perspective.

Do not let short-term market volatility impact your long-term investment strategy.