Sensex cracks below 50,000: 5-point checklist for investors on how to pick stocks on dips

The quality of an investor’s portfolio is directly proportional to the quality of advice. Investors must ensure their hard-earned money is invested in businesses that are capable, reliable, and are future-ready.

February 23, 2021 / 09:51 AM IST

Five straight sessions of decline pushed benchmark indices below crucial support levels thanks to weak global cues, and a rise in crude oil prices. The S&P Sensex plunged, and the Nifty50 plunged more than 5 percent each from highs.

The S&P BSE Sensex closed below 50,000 on Monday while the Nifty50 closed below its crucial support at 14,750 on Monday.

Rising US Bond real yields made equity valuations look more stretched in comparison pushing markets lower across the globe. “Yields on 10-year Treasury notes have already reached 1.38%, breaking the psychological 1.30% level and bringing the rise for the year so far to a steep 43 basis points,” said a Reuters report.

The only support is that foreign institutional investors (FIIs) are still net buyers in the cash segment of Indian equity markets so far in February. FIIs have poured in more than Rs 23000 crore as of data collated from 29 Jan-19 February, 2021.

Close

Two technical factors which supports the bearish sentiment ahead in the short term is the MACD indicator or the Moving Average Convergence Divergence (MACD) which gave a bearish crossover on Friday. The Supertrend indicator triggered a sell signal on Monday.

It is a healthy correction in an overall bullish trend. Investors are advised to pick stocks on dips for medium to long term investment horizon, suggest experts.

“Definitely, the bigger story is still intact. In fact, we had a short-term target of 15500 on Nifty and it has made a high of 15431 almost reached our target price. Some corrections are always healthy for the markets and I think the dip should be definitely used as a buying opportunity for the medium to long term,” Jay Thakkar - VP and Head of Equity Research at Marwadi Shares and Finance Ltd told Moneycontrol.

“One has to be sector and stocks specific as at these levels it may not be overall uptrend wherein all stocks participate,” he said.

The basics of investing remain the same at highs as well as lows. Investments based on speculation, lack of insight, and incompetent analysis are bound to hit roadblocks and dead ends, suggest experts.

The quality of an investor’s portfolio is directly proportional to the quality of advice he/she follows. Especially in this testing pandemic time of volatile economic situations, investors must ensure their hard-earned money is invested in businesses that are capable, reliable, and are future-ready.

Investors could follow these few pointers as highlighted by Tarun Birani, Founder and CEO, TBNG Capital Advisors:

High RoE:

Returns are the sole factor behind investments. Organizations with low or negligible ROEs are unlikely to offer investors any value on their investments.

Low Debt:

Organizations with high profitability and low or no debt are attractive businesses to invest in, considering the growth prospects.

Good Corporate Governance:

The reliability and ethics of an organization over time speak volumes of its future prospects and reliability as long-term investments.

Agility:

One thing we have learned from COVID-19 is businesses need to adapt to survive. Agility helps businesses traverse through even the toughest scenarios, be it a pandemic, losses, ever-changing business landscapes, and more.

Promoter Holding:

The faith in a company can be derived from the promoters; share in the company. High holding implies the promoter is deeply invested in the future growth of the company.

High Growth:

To reap gain a company’s future potential is derived from its historic path to the current growth, its cash flow, and an analysis of its future performance over the long term.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Kshitij Anand is the Editor Markets at Moneycontrol.

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