The emphasis should be on choosing those names which have strong balance sheets and return ratios with sound management quality. However, one has to be mindful of near-term volatility and hence, investments would need to be made with an 18-24 month time horizon at the least, Vipin Khare- Director of Research, William O'Neil India, said in an interview with Moneycontrol’s Kshitij Anand.
Q) Do you think most of the stocks which have corrected have bottomed out?
A) Among the Nifty 500, only 15 percent of the stocks are trading above their 50- and 200-DMA. Only around 10-15 percent of stocks in the Mid-cap 100 and Small-cap 100 indices are trading constructively in our view.
Rest of the stocks are either trading below or breaching their key moving averages. The index is range bound between the levels of 10,580 on the downside and 10,985 on the upside and is yet to break out decisively into a new rally.
To confirm that the markets have bottomed out, investors should look for a follow-through day (where market gains more than 1.5 percent in a day). It is the best indication that markets have bottomed out and are set for the next rally.
Q) How should value investors filter stocks which have seen a double-digit fall in the year 2019 especially from the mid & small-cap space? And, it this time to pick value stocks?
A) Value investors prefer stocks that are priced at a discount based on traditional methods of evaluation, such as the price-earnings ratio or price-to-book value etc.
So in that sense, the term explains investor preferences more than stocks characteristics. However, after a detailed study of past market trends, William O’ Neil established that three out of four stocks decline during a weak market.
So first, investors have to establish the state of the market.
Now, that the market is showing signs of resilience, there is an emerging bias toward value stocks. However, what the street considers bargains based on measures such as price/earnings or price/book ratios may not be always true.
Investors would do well to look for stocks with good fundamentals in leading industry groups. If we find two leading stocks that are similar in terms of market share, earnings growth, management expertise, fund buying interest etc. the one trading at lower multiples might be the better choice.
Q) With additional volatility in equity markets it looks like investors are turning risk-averse. What would be your advice to them?
A) These are very difficult markets to trade and hence mutual funds offer a good investment option. A common investor can benefit from the expertise and understanding of professional investment managers of a mutual fund.
However, the proportion of funds to be put in FDs versus mutual funds depends on the investor’s risk appetite and return expectations.
Q) Any top five stocks which you think are good buys after recent carnage and why?
A) The following stocks have been very resilient in our portfolio:
The company delivered better than expected performance in the recent quarter with superior efficiency in its oil refinery business and at the same time showing growth in its retail, as well as telecom (Jio) segment.
It plans to tap into the domestic retail market through both online and offline channels backed by the strong infrastructure of Jio. Technically, it has held itself above key moving averages during the sell-off in the markets.
Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
It is likely to benefit from increased opportunities in the generic space caused by the supply disruption from China. It has announced capex plans of Rs 12,000 crores for the two brown field projects which are expected to be completed by the end of 2019.
Technical set up for the stock looks good as it has surpassed its 21-DMA. The stock has outperformed the benchmark indices and has a strong up-trending Relative Strength (RS) line in a weak market.
With better than estimated Q3 FY2019 results, the company has continued with its strong revenue and EPS growth.
The stock is forming a tight area in a weak market and has maintained its strong price-strength. It trades constructively above its key moving averages amid non-rallying market.
Given the recent resilient performance by the IT sector, this is a technically good stock to keep in one's portfolio. Technically, the stock has outperformed the benchmark indices during recent sell-off and has only moved sideways when Nifty 50 was in a selling spree during recent few sessions, showing the improving relative strength. Post the buyback announcement, the stock has also seen accumulation in recent sessions.
This is a stock to keep on the watch list for investors. Cement sector has shown strength in recent sessions.
With improved IIP data in recent periods, the revival of construction sector, GST relief to real estate sector, cement companies are likely to benefit from the impending demand push.
The stock has retaken its 50-DMA amid recent accumulation. It'll be actionable if it continues to show technical strength and retakes its 200-DMA.
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.
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