If someone is making an investment at current levels, he/she should have an investment horizon of one to five years. The exposure could be shifted to mutual funds as well as directly into equity.
Indian stock market witnessed one of the largest selloffs post Budget 2019 on August 5, pulling benchmark indices below their crucial support levels. The S&P BSE Sensex broke below 37,000 while the Nifty50 breached the 10,900 levels.
Investor wealth was down by more than Rs 11 lakh crore, as of data collated on August 2. The average market capitalisation of BSE listed companies fell from Rs 151.35 lakh crore recorded on July 5 to Rs 139.98 lakh crore on August 2, 2019.
The vertical drop in the Indian markets could be attributed to both local and global factors. On the domestic front, Budget proposals related to a tax surcharge on foreign investors, muted corporate results, below-normal monsoon, a perceptible slowdown in economic growth, as well as corporate governance issues played their part in bringing down stocks.
On the global front, fresh concerns over trade talks between the US and China, clouds over global economic growth, and currency woes hit sentiment.
Indian markets are trading near fresh 5-month lows and this is a golden opportunity for investors to take a re-look at their portfolios. There are many bluechip names that have corrected in double digits and can be picked up at reasonable valuations.
If someone is making an investment at current levels, s/he should have an investment horizon of one to five years. The exposure could be shifted to mutual funds as well as directly into equity.
“This is an ideal time for investors to review their portfolio and also to reflect, as a prelude to making fresh strides in the market place. The review will highlight the stuff that should be got rid of and the stocks that could be held on to. It is another exercise to identify the new stocks to be acquired for the portfolio,” Joseph Thomas, Head of Research, Emkay Wealth Management told Moneycontrol.
“It is also advisable that the exposure to equity is split into direct equity exposure and managed funds like mutual funds and portfolio management services. The key to bringing about the desired changes is a comprehensive review of the portfolio,” he said.
Some of the high conviction picks highlighted by recent brokerage notes give emphasis to private banks, IT players, consumption, and select pharma stocks.
Investors could look at select mid- and smallcap stocks, which are in a tight bear grip. A few names or companies that are displaying signs of earnings growth could be looked at for investment.
The consistent correction in midcaps has reduced its Fw PE to 13.4x Vs 17.2x of Nifty50 (based on Bloomberg estimates).
“On a broader basis, our preference at this juncture is towards mid- and smallcaps as compared to largecaps. In absolute terms the Midcap Index has given away 70 percent of the outperformance (over Nifty50) shown during 2014-2017,” Kotak Securities said in a note.
“Another 10 percent underperformance could make it very appealing against the Nifty50. In the last 18 months, the Smallcap Index has given up most of the outperformance (over Nifty50) seen during 2014-17. Going forward, maximum upside potential could be witnessed in the BSE Smallcap Index,” it said.
The brokerage firm further added that the current correction and beaten down prices of mid- and smallcaps offers a good time window to accumulate stocks from a 2-3 year perspective having reasonable earnings growth forecast and reasonable valuations (i.e. at or below their 10-year average valuations).Disclaimer: The views and investment tips expressed by the 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.