Financials would play a vital role in any economic turnaround therefore select PSU banks and NBFC's with strong pedigree.
After witnessing relentless selling pressure since July, driven by foreign portfolio investors' (FPIs) exodus post Budget announcements, the Indian stock market received the much need shot in the arm after Finance Minister Nirmala Sitharaman made several key announcements on August 23 to revive growth.
From the market's perspective, perhaps the most impactful announcement was the abolition of tax surcharge on FPI and domestic investment.
Other key measures announced by the FM include the front-loading of PSU bank recapitalisation to the tune of Rs 70,000 crore, providing additional liquidity to the housing finance companies through NHB, several sops to the auto sector and incentives to the startup environment.
Indian equity markets can only witness a sustainable rally if it is backed by real fundamentals. For that, we have to see a turnaround in the stressed sectors of the economy, especially auto that has witnessed major correction in the last one year. The economic environment is witnessing a slowdown and in this context, we can expect aggressive deleveraging of corporate balance sheets which would further cap the upside in the equity markets.
The first step towards pursuing an investment strategy, especially in volatile market conditions, is to identify one's time horizon of investment, the risk-reward equation that is palatable. Typically, investors start with a long term outlook and panic after some deep corrections and end up losing money, therefore clarity of thought is extremely important before making any investments.
The rout in the broader Indian markets, especially after January 2018, has largely been understated because the benchmarks managed to perform extremely well due to select bellwether stocks in some segments. There are various pockets of opportunity in the midcap largecap space where good quality stocks have also corrected more than 50 percent from their highs.
For investors who can be patient and have some risk tolerance, venturing in the midcap and smallcap space with a two to three years horizon can be extremely profitable as the risk-reward now appears favourable.
For investors with moderate risk tolerance sticking to market leaders in the benchmark indices such as Nifty can be a good strategy, for e.g. HDFC, HDFC Bank can be good stocks, here also, the time horizon should be a minimum of one year.
For investors with short term horizon, this is perhaps not the right time to enter the markets as there are chances that they can get sucked in the market volatility and lose money. Current market conditions are good for day traders, they can buy deep dips and sell rallies to make money but they are advised to maintain strict stop losses with all their positions.
Sectors and stocks that we like
In a bleak economic landscape, tepid consumer demand and stress in several sectors of the economy, we expect the government to be the saviour of the last resort. Aggressive government spending will help the economy and markets recover from the current mess.
Investors can align their investment thesis with the growth focus areas for the new government such as infrastructure, affordable housing, aviation etc. Companies in the infrastructure, real estate, cement, and the engineering sector are expected to deliver exceptional returns to their investors in the longer term. Financials would play a vital role in any economic turnaround, therefore, select PSU banks and NBFC's with strong pedigree are also on our list.
For our stock recommendations, we picked names that are available at attractive valuations due to the recent market corrections, we have chosen to go with market leaders in select sectors to minimize risk and mitigate portfolio volatility.
(The author is Director Wealth Discovery/EZ Wealth.)Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.