Mistakes To Avoid During Market Crash: 'Don't Stop SIPs', 'Avoid Leverage', Says Zerodha's Nithin Kamath

Zerodha co-founder and CEO Nithin Kamath on Mar. 3 reached out to new investors, who may be panicking amid strong corrections in the Indian stock markets.

In a post on X, Kamath responded to reports that active systematic investment plan (SIP) accounts in direct plan mutual fund (MF) schemes have declined. He advised post-COVID-19 investors that joining the trend now would be a bad idea.

"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," he wrote.

Kamath advised against stopping SIPs in such a situation, noting that "What an SIP helps you do is to average your investments across different market cycles." Notably, active SIP accounts in direct plan mutual fund schemes declined by nearly one million in January.

The Zerodha co-founder highlighted that in 2020, large, mid, and small-cap stocks fell by 25-40% but later surged by 200-400%. Kamath said those who panicked back then would have missed the rebound, suggesting that the trick to long-term success is to adopt a regular investment approach in the right funds in a diversified manner.

He also warned investors against borrowing money to invest as some people might be trying to leverage the dips amid volatility.

"What I do know is panicking now is the wrong thing to do, and you can get pushed to panic if you have borrowed," Kamath added.

In a blog attached to Kamath’s post, Zerodha explained that the simplest answer to understanding the ongoing market correction is: "There are more sellers than buyers."

The blog addresses five critical reasons behind the market correction trigger. It said that one of the key reasons was that markets are very expensive. "When valuations are high, future returns are low, as the markets adjust. We’re probably seeing some of that play out right now," it read.

Further, foreign investors are pulling out of Indian markets. Over the last few quarters, the slowdown in the earnings growth of listed companies has only added to this trouble, the blog read.

"India's GDP growth has moderated. Inflation has taken a toll on Indian households. Urban consumption has fallen off a cliff…," Zerodha explained, noting that the economy is not in good shape right now as people are not able to consume and companies aren’t investing.

Additionally, U.S. President Donald Trump's tariff decisions are expected to further weigh on the markets, adding to global economic uncertainty.

Factors such as the COVID-19 pandemic, the Middle East crisis, and the Russia Ukraine war, among others, have already worsened these uncertainties.

"If someone promises you low risk and high returns, you're being scammed. Volatility is the price of admission in the stock market. Do you want higher returns than a fixed deposit? The cost of that is feeling terrible during downturns—like this one," Zerodha stated, emphasising that uncertainty is not a flaw but a fundamental characteristic of the stock market.