Generating Awareness for Investments

Net a prized CATCH

Does the current market situation provide an opportunity to pick up great stocks at reasonable prices?
Aman Dhall
checks out what buying strategies to adopt

BOTTOM fishing in stock markets is like putting a net in deep waters. Like you never know what to expect each time you throw the net. Similarly, every single time you go for value investing in the stock universe, you are unsure of the outcome. Both require intelligence, experience and some trial-and-error to net your prized catch. With equity markets on a downturn, the big question for the Indian investor remains — is it time for bottom fishing? Does the current market provide an opportunity to accumulate great businesses at reasonable prices? SundayET fills you on what buying strategies to adopt in the current market turmoil.
HAS THE MARKET BOTTOMED OUT?
If analysts are to be believed, the capital markets are still not out of the woods yet. A lot, feels Anup Bagchi of ICICIdirect, will depend on how the bailout packages, announced so far, play themselves out in the coming days. "The fall, which the global equity markets witnessed, was unprecedented. In the process, there are bargains that have emerged in the markets. However, one can still not say with precision that the Indian markets have hit the bottom," he says.
    For starters, a bear market has two legs: price correction and time correction. On the first, analysts think Indian markets are almost there but feel that the real pain will come from the second leg. "This is the period when markets will test your patience and conviction. So while in the short run, valuations seem to be reaching their trough, it is not sure how long it may take to catch a definite uptrend," explains Bagchi.
WHAT SHOULD BE YOUR STRATEGY?
According to Dipen Shah, vice-president, private client group of Kotak Securities, the ideal strategy right now should be to gradually start accumulating stocks with a medium-to-long term perspective in select sectors rather than wait to catch the bottom. "This will allow you to take advantage of any further downside. Also, it will help you to either participate in a rising market or book profits depending on your outlook. It is always advisable to buy in panic and not do panic buying," he says.
    Bagchi, however, considers that investors should allocate money in a staggered fashion into quality blue chip companies. "So, ideally 30-40% allocation should be made to equity/ equity mutual funds, 20-25% cash should be maintained and the rest can be kept in fixed deposits and bullion," he says.
    But a word of caution for investors who try to time markets — you may benefit to certain extent by selling stocks before lows are hit but invariably rebounds are missed. History has time and again confirmed that asset allocation, diversification and periodic rebalancing are the tools, as an investor, you must use to weather downturns. In addition, you must look at fundamentals of the company along with valuations.
WHICH ARE THE SECTORS TO BET ON?
In the short run, since the market is highly oversold, analysts believe that if a technical rally happens, then almost all stocks, which have been bruised badly, will offer quick bucks. "However, then how long the technical bounce sustains is a million dollar question. A lot depends on how the earnings season pans out because a slight deviation from expectations can create huge volatility in stocks," says Bagchi.
    Over the medium-to-long period, analysts advise exposure in sectors that are more focused on the domestic markets and have been beaten down significantly. "With inflation and interest rates likely to peak out and commodity prices also on a downward spiral, one can look at selective stocks in sectors such as banking, capital goods, construction, media and logistics sector," says Shah.
    aman.dhall@timesgroup.com