It has been testing times in the recent months for investors who were fortunate enough to have been a part of the spectacular rally witnessed in the stock markets during 2003.

However, its been worse for those who have not exactly managed to reap the benefits of the stock market rally last year and have got onto the bandwagon a little later. This is because, while 2003 saw the Sensex surge by a massive 73 per cent, 2004 has seen the indices tumble by 19 per cent, as yet!

There are various reasons for stock markets, not just in India, but across the Asian region to have witnessed a sharp correction in 2004.

Fears of inflation, owing to high crude oil prices, retarding growth of economies, especially emerging economies, and higher US interest rates have provided enough reasons to FIIs to pull out some money from these markets.

However, it must be noted that despite these (and more) concerns, the fact remains that China and India will continue to remain the fastest growing economies in the world.

However, considering the very recent behaviour of the indices, which have been stuck within a narrow range since the crash of May 17, 2004, this is one of those times when investors tend to get somewhat restless and try to play the markets in order to make some money.

However, we feel that it is more so now that investors need to take a balanced approach towards investing. While we have always maintained that investors must invest only with a longer-term frame of mind, another sound approach would be to follow the Systematic Investment Plan (SIP), wherein an investor needs to invest a particular sum of money at regular intervals.

This would help the investor arrest the fear of a stock market crash, as by following this approach, it would provide the investor with an opportunity to invest at lower levels also, thus effectively leading to an averaging out of his portfolio.

Further, during times of such uncertainties when there are various apprehensions regarding sectoral trends (power, banking, etc), it is advisable to adopt a bottom-up approach (see chart above) to investing. While the stock market per se could remain volatile, we feel that the Indian stock market is a bottom-up story.

There are companies that could outperform benchmark indices as well as index heavyweights in the future. It is not necessary that the index has to move up for investors to make money in equities.

Even during the so-called 'bear phase' in the three years prior to 2003, a number of stocks did outperform the indices hands down. Stock selection is critical. Further, for investors who are relatively risk-averse and for whom capital protection is of prime importance, it is safer to stick with liquids and fundamentally sound companies instead of investing in 'emerging mid-caps'.

Our long-term view is that there are companies in India with very good managements and very good business models. We also believe that over the long-term, money flow into equities, as an asset class will rise.

We do not believe that equities as an asset class will ever be dead. Equities are probably the preferred asset class for most investors over the long haul. One needs to practice patience and give time to ones investments to grow.

To conclude, we would just like to quote Ajit Dayal, the co-founder and Chairman of Quantum Information Services Limited that owns Equitymaster.com and Personalfn.com, which sums it all, 'The buying opportunity has begun'.

Equitymaster.com is one of India's premier finance portals. The web site offers a user-friendly portfolio tracker, a weekly buy/sell recommendation service and research reports on India's top companies.