Zerodha’s Nithin Kamath reveals two major pitfalls for investors facing their first real market crash

Zerodha CEO Nithin Kamath shared valuable insights for investors navigating the ongoing stock market correction, particularly for those who started investing post-pandemic and are facing their first real market crash.

“For investors who started investing after the pandemic, this is the first real market correction. Markets are cyclical, and given the way our markets went up from late 2020, this fall was inevitable,” Nithin Kamath stated in a post on social media platform X on Monday.

Stick to SIPs

He expressed concern that many investors, particularly those with systematic investment plans (SIPs), have started halting their contributions, a move he believes could impact long-term growth.

Kamath said while he could not vouch for the day, it seems the number of investors stopping their SIPs has gone up. “This is the wrong thing to do,” he said.

According to a report by JM Financial, the SIP stoppage ratio spiked to 109% in January, the highest since it hit 52% in April last year. This indicates that the recent market downturn has impacted the confidence of retail, or individual, investors, making investors lose out on the power of compounding or rupee cost averaging.

Kamath explained that an SIP helps you to average your investments across different market cycles. “You averaged on your way up from 2021; now, you get to average on the way down,” he said.

Kamath drew parallels to the market behavior seen in 2020, when large, mid, and small-cap stocks experienced significant falls of 25-40% before rebounding with gains of 200-400%. He reminded investors that panicking during downturns could result in missing out on future recoveries.

As part of his advice, Kamath emphasised the importance of sticking to a disciplined, long-term investment strategy. “As long as you invest regularly in the right funds, diversify, and stay disciplined, your chances of long-term success are high,” he added.

Avoid Leverage

Another recommendation for new-age investors that Kamath shared was to avoid leverage. “There’s no shortage of businesses encouraging you to borrow money to invest, but that’s a bad idea,” Kamath said.

He said that while no one has any idea which way the stock markets could move, borrowing to invest only increases the pressure to act on panic.

“You are better off just investing every month and doing something useful in life than getting carried away by the doom and gloom,” he added.

Nithin Kamath’s comments come at a time when the Indian stock market is facing immense selling pressure. The benchmark indices – Sensex and Nifty 50 – have declined for five straight months, a trend last seen nearly 30 years ago in 1996. The fall in the broader markets is steeper, where retail investors have a larger exposure, thus making his investment advice crucial for them.

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