The markets are the ground realities are two completely different things. The corona cases are spiking to new highs every single day and the markets continue with their gallop; its like the market and India live on two different plateaus. And this is explained by punters in a quick and easy way - “market had already discounted the fall and is now looking ahead!”
Is that what this run up of the market all about –discounting of all bad events and already looking ahead at a much robust picture?
If that is the case then we Indians are most certainly the most optimistic people on earth as all that we see ahead, at least if one goes by the indices on Dalal Street, is simply a time of glory and great growth.
Maybe it’s the earnings of the front line IT stocks which took the indices by a pleasant surprise – this has kindled hope that Q1 might not be as bad as expected. Well, IT and rest of the brick-and-mortar companies are two different things.
But while the market is booming, take a close look at the stock surging. It is mostly stocks with the highest market capitalization. Even the fund houses and HNIs are putting all money in such high cap stocks as they, like rest of us, when the market jumps up like this, feel that markets will come down and they need to be ready for that. Investing in large cap stocks keeps them insured against the ups and downs as they feel, large cap stocks do not fall as sharply as mid and small cap.
What have the FIIs been upto? Till 15th July, they have been net sellers to the tune of Rs.3596 crore. DIIs too have been net sellers – for once they both seemed to have moved in the same direction.
We as small retail investor need to stay very focused. The action for us is more stock specific, prices driven by earnings, completion of project, getting new orders, forming new alliances/JVs and staying away from all debt ridden companies. Buying contrarian at this juncture is a huge risk; like BHEL is butchered down, yet it makes no sense to buy at lows as we need to wait and watch how Q1FY21 fares; maybe that will give you a much better and cheaper option?
A few points to keep in mind in these markets:
- Buy only into sound companies, with no corporate governance issues. Or else, more fall is certain as more and more skeletons will tumble out of the cupboard.
- Do not buy companies hitting new lows which have huge debt and major liquidity issues.
- To buy into low priced stocks is a good idea but not those which are in a crisis mode. On the other hand, if it is a veritable blue-chip like Dr.Reddys, even notwithstanding the US FDA crisis, every low is a perfect time to accumulate this stock as a company of this big a repute is sure to get over this crisis. They simply cannot afford to go down!
- Do not buy the penny stocks hitting rock bottom – there is no “Infosys or L&T” in the making there.
- Sectors like infra, capital goods have solid stocks; keep an eye on these stocks as they will stand to benefit the most when the rebuilding process takes off. L&T, Thermax or FMCG stocks like Tata Consumer, Dabur, HUL are few very strong companies and they never go out of the “blue” list.
- The right time to go bottom fishing is when markets show a few days of higher closes or even if it shows consistent weekly higher close.
- Be like this investor– Ashalata Maheshwari. Buy quality, high dividend paying stocks and be a long term investor. Then such vagaries and falling knives will not hurt.
- Buy blindly into stocks mentioned in our Stock Recommendation section, you will never go wrong.
- Simple rule of investing – stick to companies whose business you can understand and if they are into exotic forex instruments, steer clear. Balance sheet is the guiding star, follow and understand it, you will never go wrong.