Should You Exit Equity Now? The Costly Mistake Many Investors Make in Bad Markets

Should You Exit Equity Now? Or Stay Invested?

Over the last few months, many investors have started feeling uncomfortable. Portfolios which were earlier showing very healthy gains now appear dull. Returns have slowed. Some portfolios may even be fairly down from 2024 highs.

The natural question is: “Should we get out of equity now?”

This is not the time to panic. This is the time to stay disciplined.

The discomfort is understandable. After the COVID fall in 2020, Indian equity markets saw a very strong rally. The Nifty moved from around 8,000 during the panic to above 26,000 at its peak. Such a sharp rise created strong wealth, but it also created an expectation that equity markets will keep delivering high returns every year.

That is not how equity works.

Equity returns do not come in a straight line. They come in phases. A few years create a large part of long-term wealth, while a few others test our patience. The current phase is one such test. Markets are not “broken” — they are simply digesting the strong rally of the past few years.

There are several reasons for the recent slowdown. Earnings growth has normalised. Valuations had become expensive in many pockets. Foreign investors have been cautious. Global uncertainties, currency movements, and geopolitical risks have also added pressure.

In simple words, the market is no longer getting the same support it had post-COVID.

But this does not mean long-term investors should abandon equity.

In fact, phases like this are a normal part of equity investing. Markets regularly go through corrections, sideways phases, and temporary declines.

The second chart highlights an even more important point: despite wars, crises, recessions, and frightening headlines, Indian equities have moved upward over the long term — driven by earnings growth and economic expansion.

The biggest mistake investors make in such phases is trying to exit now and re-enter later.

It sounds sensible in theory, but in practice, fear prevents re-entry. By the time confidence returns, markets may already have recovered. Missing just a few strong recovery days can significantly damage long-term returns.

The goal is not to predict the bottom.
The goal is to stay aligned with your financial plan.

This does not mean blind investing. Money needed in the next 2–3 years should not be exposed heavily to equity. Emergency funds and near-term goals must remain protected.

However, money meant for long-term goals — children’s future, retirement, wealth creation, or legacy planning — should not be disturbed because of temporary market phases.

For SIP investors, this phase is actually beneficial. Lower markets allow accumulation at better prices, which improves long-term outcomes.

For lump sum investors, the right approach is to focus on asset allocation and invest in a structured manner (like STPs), instead of reacting emotionally.

At Hum Fauji Initiatives, our advice remains plan-based, not mood-based.

If your asset allocation is appropriate, your goals are long-term, and your emergency needs are taken care of, then the most sensible action today may simply be to do nothing.

That “doing nothing” is not inactivity. It is discipline.

Good markets and bad markets are both part of the same journey. We benefited from the earlier phase because we stayed invested. We will benefit from the next phase only if we remain invested now.

So instead of asking, “Should I exit equity now?”
Ask: “Has my financial goal or time horizon changed?”

If the answer is no, then the action is clear.

Stay invested. Continue SIPs. Avoid reacting to short-term noise.

Equity rewards patience — but only after testing it.

If you still have concerns, feel free to connect with Team HFI.

Col Sanjeev Govila (retd.)

CEO, Hum Fauji Initiatives