The stock market is testing the patience of the investors. Every rise in the market is proving to be a temporary one. Market moves up 3-4 days in a row, giving some hope that the worst is behind us. But some events, whether global or local, intervene and pull down the indices.
Right now, the market sentiment is the casualty. Investors are confused about how to navigate this market, despite the YTD Sensex being in the green zone. The wealth destruction is reflected from the fact that out of the BSE 500 companies, as many as 394 companies are quoting below their 2017 levels. Even though Sensex is at 35500, my guess is that the sentiment belongs to the 28000 level. There is a pervasive feeling of gloom and doom.
So what should one do in a situation like this? My advice would be: don’t panic. Don’t sell quality stocks that have the potential to generate wealth for you. This phase in the market in transient. I have explained why it is transient a little later.
In these times, I would recommend a few things for you:
1. If a look at your portfolio depresses you, avoid looking at your portfolio on a daily basis. Staring at your portfolio is not going to increase its value, but it may increase your BP!
2. Never lose confidence in the equity market. If you are a long term investor, then your attitude should be like that of a long term investor. Long term investors are not bothered by short term market movements. Long term investment is like a five-day cricket match, where few maiden overs do not matter, unlike in a T20 match.
3. Don’t buy companies that have fallen due to some stink on corporate governance. These companies are unlikely to rise even if the market improves tomorrow. These would be laggards. Frankly we also never know how many more issues are lurking beneath the surface in these companies. Don’t try to catch falling knives.
4. Time to review your portfolio and identify companies whose valuations you believe are quoting above their fundamentals. May be it is time to book losses and use the proceeds to buy good quality companies. This will improve your returns from the portfolio. Look at our mojo stocks. They will guide you for picking good quality companies at reasonable valuations.
5. This is a good time to buy equity. After all, the basic principle of equity is to buy low and sell high. But invariably we end up doing the opposite. Buy in a staggering manner as this market is not going to move up in a hurry.
Why this phase is transient?
Every few years we have seen sharp downward movement. But the beauty about the Indian market is that it bounces back smartly with a new all-time high. Another comforting factor this time is that the Sensex did not move up substantially in a very short time, which was the case in 1992, 2000 or 2008. This time around, the gain in Sensex has been moderate. Also, the rise was not quick. That means the fall would not be as steep as we saw in 1992 or 2000 or 2008. Hence, I don’t expect a major fall in the Sensex from this level.
But I do agree that the valuation of the Indian stock market is above the historical level, but the key is that India Inc must improve its earnings growth cycle. While the rise in crude oil prices along with other input costs did impact margins, the situation now suggests that crude may not run up much from this level. The latest OPEC meeting could not reach a consensus on the production cut, which augurs well for the country. If the world economy slows down, there is little reason for crude oil to move up. The benefit of lower crude oil prices is reflecting on the value of rupee, which has shown some strength in the last few weeks. On the domestic front, the state election results continue to make market nervous, but election results normally have an impact for a day and hence don’t give too much importance to them. The latest RBI policy did give some indication that a cut in the interest rate is not off the table. So, some of the factors that were bothering the market have now started looking less worrisome. Even the FPIs who have been aggressive sellers in the market in September and October have turned positive in November. But to be frank, I don’t see the market running up too much and too fast. We may have pain points for at least next 3-4 months. We should ride out this bad phase. Time to act with a smart strategy, rather than panicking. Darr ke aage jeet hai!
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