Last year has been a year of strong performance after a subdued 2022 for equity investors. The Nifty 50 index, the Nifty Midcap 150 index and the Nifty Smallcap 250 index have given impressive returns of 21 per cent, 51 per cent and 61 per cent, respectively, in the last one year.

Investments in micro, small and midcap categories were more rewarding compared with large-cap companies. Along with the small and mid-cap stocks, one segment of the market that attracted high investors’ attention was the initial public offerings.

Blockbuster listings during the year attracted many new investors to the market. Speculating on an IPO stock for listing gains has become a favourite indulgence for many. More adventurous souls are dabbling in futures and options for higher returns.

Strong equity returns post Covid have attracted many new investors to the market with participation going up both in the cash and derivatives segments.

Social media platforms and Youtube are full of stories on how some of the fin-fluencers/investors/traders have made it big in the market by following certain strategies.

All this seems to have created an illusion that making money in the market is easy and akin to a T20 cricket match, where results are quick.

Though the year has been rewarding, investors need to be careful in extrapolating performance of 2023 into 2024. In this euphoria, it is very easy to extrapolate returns and recent successes to the future and ignore risks.

Fundamentals for the Indian markets are strong. Opportunities arising from favourable demographics, digitisation, ongoing reforms and the turn around in investment cycles are real.

Corporate balance sheets have significantly de-leveraged and NPAs in the banking system from previous cycles are recognised and provided for.

However, returns are not likely to come in an upward straight line. There will be periods of volatility, time and price corrections.

Apart from company specific factors, there can be a number of unpredictable events such as geopolitical events, election outcomes, surprises on inflation and an interest rate trajectory that can potentially impact markets as a whole.

The thing with risk is it comes when no one expects it. So, whilst the outlook for Indian equities is positive from the medium to longer term, the question is — are investors prepared for the volatility and drawdowns that will surely come along the way?

Remember what Naseem Taleb says: “Invest in preparedness and not prediction.”

So how can investors remain prepared for the risk which will invariably playout but is unknown today in terms of how and from where it will come. Let’s look at a few things that investors should remember that can help them navigate 2024.

Volatility: name of the game

Equity is a volatile asset class where returns are probabilistic. High risk creates possibility of earning higher returns but does not necessarily guarantee high returns. Hence, take risks keeping in mind your own risk appetite. Remember, to make money in the long term, you have to survive the short term.

Own businesses, not stocks

Invest in businesses, not stocks. Stock prices reflect fundamentals of underlying businesses.

A business which can grow sustainably over the long term, is run by a strong management team, is capital efficient and has been bought at reasonable valuations is more likely to create wealth for investors over the longer term.

Investing in fads of the season and participating in price momentum built on narratives bereft of any fundamentals are bound to end up badly.

Invest for the longer-term

Invest with a longer time horizon in mind. There is enough data to prove that the longer one remains invested in the markets, the higher is the probability of making superior returns.

In the near term it is very difficult to predict the direction of stock prices as they are influenced by a number of factors.

The key to making money in the market is to invest from a longer term perspective and not try to time the same.

Remember the famous adage – time spent in the market is more important than timing the market.

Control your emotions

Last but not the least, control your emotions — greed and fear. A balanced and systematic approach to investing may be a superior way to have control on one’s emotions.

Designing a well thought out asset allocation plan and most importantly sticking to it during ups and downs is one of the most important aspect of one’s investing journey.

Writer is senior fund manager – equity, Nippon India Mutual Fund