It is advisable to buy winning stocks on declines whenever there is a dip.
April has been historic for benchmark indices as both Nifty and S&P BSE Sensex rose to fresh record highs. The Nifty rose to a record high of 9,273.90 while the S&P BSE Sensex had a touch-and-go moment with 30K.
But soon after benchmark indices hit their respective record highs, the momentum has weakened largely weighed down by geopolitical concerns as well as high valuations.
The equity markets are near record highs only in nominal index terms. With Sensex and Nifty PE at about 23x, they are expensive, but below the valuations of the previous 2008 high of about 29x PE, 2001 peak PE of about 30x and much below the 1992 and 1994 PEs of over 50x.
Even though bulls failed to keep the rally moving in benchmark indices, there was plenty of action in individual stocks.
A brief analysis shows that stocks which hit fresh record highs in April, the same month in which benchmark indices hit a record high, rose up to 127 percent so far in the year 2017.
Stocks such as Future Retail rose 127 percent, followed by Rain Industries which gained 87 percent, Escorts rose 84 percent, GIC Housing Finance was up 84.2 percent, and VIP Industries gained 64 percent in the same period.
There is a lot of strength in the market and that is getting reflected in the way stock prices have moved across sectors. It is advisable to buy winning stocks on declines whenever there is a dip because if fundamentals do not catch up then we could see a minor correction in markets.
Both domestic, as well as global liquidity, has been strong which kept the rally going for Indian markets despite selloff by foreign investors in the December quarter.
Retail investors poured in more than Rs 70,000 crore in equity-oriented mutual fund schemes in 2016- 17, making it the third successive year of net inflows.
But, if somebody is looking for making direct investment in equities via shares, then he/she should bet for top quality winning stocks which can perform irrespective of how benchmark indices are doing.
“One should focus your time and money in finding some of the biggest winners in the markets," Vijay Singhania, Founder-Director, Trade Smart Online told Moneycontrol. "These stocks should come from top industry groups, have fastest earnings and sales growth rates, produce cutting-edge products or services, and enjoy good profit margins and strong management.”
“The best returns are achieved through concentration, by putting your eggs in a few baskets that you know well and watching them growing. People with Rs 10 lakh (or Rs one million) idle should buy only four or five stocks. It's always better to invest in the market by taking the staggered approach. One should invest on days when markets are weak,” he said.