Warren Buffett famously said that big money in the stock market is made not in buying or selling but in the waiting. Think of it like fishing—sometimes you just have to sit there with your line in the water. This can be interpreted in two ways:
First, you do your homework, buy the right stock, and then wait for the magic of compounding to turn your little fish into a whale.
Second, you wait for the right moment to pounce—like a bargain-hunting ninja. You buy when there’s truly blood on the streets, when everyone else is running around like headless chickens, and you snag deals that would make even a seasoned Black Friday shopper jealous!
So, does the recent market fall offer that golden opportunity? Or is it time to sell everything, grab a parachute, and jump out of the stock market plane?
Here’s our take:
1. How bad is this market fall – can it get deeper? There are three pieces of bad news shaking the markets right now: the possibility of a US recession, the unwinding of the yen carry trade due to rising Japanese rates, and potential escalation of the Russia-Ukraine conflict, with Iran possibly joining in.
The silver lining: None of this directly impacts India’s growth prospects.
The dark cloud: Indian markets aren’t isolated from global turmoil. Even though foreign investors are less influential now, global trade, logistics, money costs, and commodity prices still impact corporate earnings and, hence, stock prices.
2. Can this derail the India growth story?
Nope. India’s economic growth story remains robust; we’re still one of the fastest-growing economies in the world. However, the stock market doesn’t always mirror the economy. Investors need to stay cautious. The current factors affecting the global scene will influence growth, inflation, and foreign investment, impacting Indian markets too.
3. So Indian stocks will fall if the global meltdown continues? Yes, but probably not as much. Indian companies’ earnings might not suffer as badly because our economy is more domestically focused. Plus, today’s domestic investors provide more liquidity than foreign investors.
4. Should one buy this dip then? So far, post-pandemic, every minor correction has been bought into, making investors complacent. No room for complacency now. Indian stocks have a good growth story, but they’re not a screaming buy at current valuations. However, it’s also not the time to panic and sell.
5. Is it okay to hold on to small-cap stocks? Small-caps as a segment aren’t cheap, some stocks are outrageously expensive. The Nifty 50 is fairly valued, but small- and mid-cap stocks are at historic highs, making them more volatile and risky. Some may be worthy growth stories, but they’re also bound to be more volatile. No need to sell in panic, but consider shifting focus to more stable, large-cap stocks.
6. Should you stop your Systematic Investment Plans?
Absolutely not. Equities are still a great savings vehicle. Stocks and real estate have historically beaten inflation over long periods. Short-term volatility is part of the game but doesn’t negate long-term growth.
7. Should you increase your contribution to Systematic Investment Plans? That depends on your savings potential. Based on your asset allocation, age, risk appetite, financial position, and liquidity needs, experts suggest a more cautious approach to equities now. If your normal allocation is 50%, consider reducing it to around 35%.
8. Which stocks or sectors should you avoid? Prefer stocks and sectors that rely on the domestic economy over those reliant on exports. Some market segments, like defense and railways, have reached absurd valuations. They’re clear sells. Evaluate each stock based on its growth potential; those banking on high future earnings are riskier.
9. Should you buy into defensive stocks in the consumer space? Consumer and some pharma stocks are the only green spots in today’s market. Nervous investors often seek refuge in stocks with more reliable, stable earnings, even if they don’t promise high growth. Rural recovery optimism is also boosting stocks like HUL, Marico, and Dabur.
10. Should you buy into IT? Will it qualify as defensive? Opinions are divided. Some experts favor top-tier IT companies for their management quality, high return ratios, and cash reserves. But a potential US recession could spoil the party.
11. What about banks? Large private sector banks seem undervalued. They could be good medium- to long-term investments, trading cheaper compared to historic multiples. Banks are generally a safe bet over long periods and are less likely to face disruption as a regulated industry.
12. Should I buy a stock if it’s down 10-15% from peak levels? No. Stocks correcting the most are likely those with recent momentum. A stock trading at 100x earnings, after a 10% drop, is still at 90x—hardly enticing.
13. Should I average my purchases if I bought at higher prices? Averaging is risky. If you’re super confident in the stock, it could be a good idea. But don’t jump in at every dip. Space out your purchases and keep cash ready for deeper cuts. Smart investors keep dry powder to take advantage of significant market falls.
Disclaimer: The views and investment tips expressed by investment 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.
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