The Indian economy has never done well when global crude prices are high. The reason is simple. India imports over 80 per cent of its crude, and 30 per cent of its gas. Those are necessary goods. So, the volume of imports cannot be reduced. As energy gets more expensive, the cost of imports outruns earnings from exports. The rupee comes under pressure and falls. Other imports also become more expensive in rupee terms. That causes inflation. The vicious cycle continues until crude prices fall.

The stock market also rarely does well in a general elections year. Investors hate political uncertainty. The ruling government could be good, bad or indifferent but the prospect of change always makes investors nervous.

The price of crude is now up, and it is likely to climb higher, given global tensions. General elections are due within a few months. The stock market has lost quite a lot of ground and is likely to lose more.

So what do you do with your equity portfolio? You could consider three broad strategies. One is that you liquidate your shares, booking either profits or losses, and wait for share prices to fall some more before you re-enter the market. A second is that you stop buying stocks, do not sell and simply wait. A third is that you continue buying.

The first strategy risks being left behind if the market does not fall much. It also involves finding other parking places for your cash. That is not easy. The Reserve Bank of India (RBI) says it is committed to raising interest rates and debt does badly when interest rates rise. If you decide to liquidate equity and move to debt, your safest option would be to look at short-term fixed deposits, or at liquid mutual funds. Neither will give exceptional returns.

The second possibility involves gritting your teeth and waiting and watching. Your portfolio may lose more value as elections draw nearer, and crude prices stay high. If you choose to sit tight, you may have to wait for a very long time before your portfolio comes back into profit. However, if you are confident that you hold a decent, diversified portfolio, you will eventually get returns, if you can hold your nerve.

The third possibility involves being actively prepared to lose money in the short run. Continue buying. As prices fall, so does your acquisition cost. Eventually the market will bottom out. You will have bought close to the bottom, if you can hold your nerve. When the market does eventually recover, you will make higher returns because your acquisition costs have averaged down. Again, this strategy involves holding your nerve and you have to be prepared to hold onto your equity positions for two or three years, until the global cycle turns around.

I would advise choosing the third course of action if you are confident that your choice of stocks or funds has been sensible. It might mean a long period of nail-biting, while you incur losses on paper. So, you cannot afford to use your housekeeping money, or lose your nerve. But it should eventually give better returns than shifting into debt, or simply sitting tight.

There are a few other ways, in which you might look to actively exploit the combination of weak currency, high crude prices and probable inflation. One is to diversify abroad. If you buy into dollar assets, such as American debt funds, you may get decent returns simply on the basis of a weaker rupee.  A second possibility, which is more obvious, is to increase your exposure to export-oriented businesses, which will benefit from the weaker rupee. This means buying more in the way of IT and pharma stocks. A third option is to start buying gold, either in physical or demat format. When investors are nervous, the precious metal becomes a favoured hedge.

Whatever you do, be prepared for a rough ride for the next six to nine months. If you have started investing recently, welcome to your first bear market! It will not be pleasant but if you are going to be a successful investor, you have to learn how to handle bad times.

The author tracks economic, behavioural and corporate tends, hoping to gauge good avenues of return