How should stock and mutual fund investors rebalance their portfolios amid market volatility? Here’s a guide

Amid increasing geopolitical risks and economic uncertainty, experts advise investors on how to rebalance portfolios effectively. Focusing on quality stocks, maintaining SIPs, and adjusting allocations can help navigate this volatile landscape. 

 

This year so far has been challenging for equity investors largely due to increased geopolitical risks, higher crude oil prices, and the rupee’s weakness. Market benchmark Nifty 50 is down 9% year-to-date.

 

Crude oil prices have remained elevated for more than two months now, fanning concerns that they will drive up India’s inflation, widen the country’s current‑account deficit, drag corporate earnings, and slow the momentum of economic growth.

 

Rating agencies and experts are revising their growth and inflation estimates for the Indian economy.

 

Global brokerage firm UBS has cut its FY27 India GDP growth forecast to 6.2% from 6.7%, reflecting the downside from this oil‑induced shock. Standard Chartered Bank has downgraded its FY27 growth forecast for the Indian economy from 7.1% to 6.4%.

The majority of experts believe that if the situation persists for a longer period, the Indian stock market may remain volatile and deliver modest returns in FY27.

How can investors rebalance their portfolios?

Experts say this is not the time to go aggressive on stocks and select only quality stocks.

“To prepare for this volatility, investors should tilt towards select quality large‑cap, high‑free‑cash‑flow names with limited direct commodity exposure, while maintaining strict position sizing and adequate cash buffers,” said Vinit Bolinjkar, Head of Research, Ventura.

“Incorporating regular profit‑booking, staggered SIP‑like entries in volatile phases, and some hedging via duration‑adjusted bond allocations or sectoral diversification outside the oil‑sensitive universe can help preserve capital when the market swings,” said Bolinjkar.

Abhishek Jain, Head of Research, Arihant Capital Markets, underscored that portfolio decisions should primarily depend on an investor’s risk appetite, investment horizon, and ability to actively track markets.

 

“For investors who are unable to monitor stocks on a daily basis, mutual funds remain a better and more disciplined investment option, as they provide professional management and diversification. Investors with a long-term horizon of 3–5 years should continue investing systematically rather than reacting to short-term market movements,” said Jain.

As far as portfolio strategy is concerned, Jain emphasises that allocations between equities, mutual funds, and ETFs should be aligned with the investor’s financial goals and risk profile, rather than being driven purely by market sentiment or temporary volatility.

According to Tushar Badjate, Director, Badjate Stock & Shares Pvt. Ltd., this is the perfect time to gradually invest in fundamentally strong sectors and quality businesses available at better valuations.

“Investors should focus on strong balance sheet companies, businesses with pricing power, domestic consumption themes, manufacturing and infrastructure, select financials and energy plays, and long-term SIP discipline in mutual funds,” said Badjate.

According to CFA Anchal Kansal, Senior Advisory Manager at Green Portfolio PMS, for equity portfolios, the playbook is straightforward: follow government spending, not just sentiment.

Kansal said with earnings season underway, investors should look beyond headline numbers. Management commentary on order books, margins, and demand visibility will separate real performers from the noise.

“Defence, infrastructure, railways, and PLI-linked manufacturing have policy tailwinds backed by actual budget allocations. Metals and defence have had a strong run; if they’re overweight in your portfolio, consider trimming,” said Kansal.

For mutual fund investors, Kansal advises avoiding pausing SIPs, as volatility is exactly when rupee-cost averaging works. However, one must review her category mix, as mid and small-caps have run up significantly and may warrant rebalancing toward large-caps or flexi-cap funds. Adding a balanced advantage fund can provide a useful cushion if sentiment reverses.

“The market rewards those who read between the lines, not just what companies report, but what they don’t say. Vigilance, not just diversification, is the real edge right now,” Kansal said.