Sep 16, 2013 04:52 PM IST | Source:

10 golden steps to beat financial crisis

When the markets tumble, even quality stocks may slide. This may present good opportunity for stock picking. HDFC Bank, M&M and Lupin have fallen a good deal and merit investment.

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Todays L/H

“Humans have a natural tendency to perceive reality in short-term streaks, and struggle to maintain a long term perspective”

Volatility is the fact of life in stock market. During volatile times many investors get spooked and begin to question their investment strategies. A lot of investors, particularly novices, are tempted to pull out and wait on sidelines till the volatility subsides. 

The fall of the rupee is further contributing to fears and speculations. The rupee has witnessed an all time low of 64 as against the dollar.

However, one must realize that volatility is inevitable. Trying to time the market is extremely difficult. Volatility makes no difference to long term investors. Infact, the smart investor uses volatility to his advantage.

Reasons for volatility in Indian stock markets:

· Fear of tapering of the asset purchase program by the US Fed

· Weakening INR

· High twin deficit of CAD/Fiscal deficit

· Fear of continued falling growth outlook


What to focus on when the financial markets fall into Crisis? Steps that can help weather this volatility…

1. Focus on stocks and not the market. Be a Patient investor

When the markets tumble, even quality stocks may slide. This may present good opportunity for stock picking. HDFC Bank, M&M and Lupin have fallen a good deal and merit investment.

2. Buy shares of good businesses

Buy good businesses that generate attractive return on equities (ROEs), have low to moderate DE ratio, improving GPM and a shareholder friendly management. Look at companies with pricing power and strong franchisee. ITC, HDFC Bank, Godrej Consumer and Sun Pharma are some of the stocks to focus on in uncertain times.

3. Go for clear earnings visibility

Buy sectors and stocks with a clear earnings visibility and not those which are showing potential return or are dependent on an event which may or may not fructify.  ITC, Godrej Consumer, Britannia, Sun Pharma and TCS continue to have clear earnings visibility. Investors can start accumulating.

4. Avoid value trap

Never buy a stock just because it is at a low price. Stocks trading at multi-year lows are not necessarily good buy. Companies and even sectors may be doomed because of situations such as inability to survive competition, erosion in the pricing power, failure to undertake product innovation or ineffective management. Bhel is trading at an 8 year low. PSU banks are trading at a fourth of their BV. They may appear cheap but they can fall further.

5. Avoid sectors/stock dependent on government policies

Avoid a sector or stock dependent on government policies or economic environment to do well. Avoid Power Sector, Metals, Fertiliser and OMC stocks

6. Avoid high debt companies

Companies with a large debt on balance sheet are bound to be under pressure owing to rising interest rates and low growth. Also stay clear of companies with high foreign debt which will face greater pressure in the coming weeks as forex losses mount due to continued rupee weakness. Adani, Reliance ADAG, GVK, Jaypee, Lanco, GMR are some of the high debt groups / companies finding it difficult to service the debt. J P Associates, Adani Enterprise, JSW Steel have high forex debt and are facing big impact on account of INR weakness

7. Avoid companies with high promoter equity pledge

Avoid companies where high percentage of promoter equity is pledged. Suzlon, HDIL, Jaypee Infratech and HCC are some of the companies with high promoter share pledge

8. Go for staggered investment

Stagger your purchase over a period of time. Markets are likely to remain volatile and will keep on throwing opportunities time and again.

9. Selling is as important as buying

If you buy on rumor, sell on news. If the reason for buying the stock is no longer valid, exit. Keep booking profit from time to time. Under current circumstances, markets are likely to remain range bound. Even in good stocks, you will get opportunity to re-enter at lower levels. 

10. Be a disciplined investor

Don’t overtrade; you may invest in quality frontline stocks with defined time frame to help create wealth. Trust your investments and stick to your strategy.

Finally remember that a clear mind is a more rational mind.

(By Aditya Birla Money)

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