After a brutal correction, at an index level we can see some respite. But at the broader market levels, there are clear signs that valuations are still a concern. So, it might be too premature to call that the risk of overall high valuations leading to more time wise correction is over. There are questions at this point of time which need to be addressed. First, what does one do with existing investments? Second, which set of stocks one should look at if one is making if one is planning to put in fresh money? The answer to the first question, move out of stocks where fundamentals are in doubt and stocks price have just moved up because of liquidity which was rolling on the street. For the second one, stick to large caps and even in that diversify exposure to different sectors. Don t over expose oneself to one sector as one headwind in a sector can take away gains. Last but not least, stick to companies with certain level of Return on Equity (ROE), Return on Capital Employed (ROCE), and
Today despite the fact that the nifty heavyweights are trading in green territory, nifty is still trading just moving close to the red territory. This along with a negative market breadth is clearly indicating that finally a phase of profit booking has come. There is a high probability that this corrective phase may continue further. Because the valuation differential in large and mid cap had increased very sharply, there is more probability of a mean revision trade taking place. It might be better for have a bias toward looking at large cap when investing fresh money.
Once again on wednesday, there was minor correction in nifty, but more tremors were felt in the mid-cap part of the market. While it might be too early to call it even a corrective move, because this could be due to profit booking just before the expiry of the weekly option contract today. But because volatility never gives notice before coming, it is better to be prepared for it, by staying with a set of stocks which have a higher probability when a storm hits the street. While there is no full proof way, putting some filter would help at least in avoiding some mistakes. So, staying with the large caps segment, in that too staying with sectors where the market size is big and as is likely to grow at a certain rate due to basic nature of the business, then looking if the analyst score has moved higher in the last one week which has been a volatile period for the market.
At a time when nifty is moving in and out of green territory, it would be better to add one more parameter to watch, that is market breadth.There are clear signs of profit booking taking place in the broader market with market breadth not being as positive as it used to be. While the initial part of any volatility is led by large caps, there is a higher probability that the large caps are able to stabilize much before any part of the market.So, if one is thinking of fresh exposure to the market it would be better to stick with large caps as they are likely to outperform as and when we see return of FPI flows. ET screener powered by Refinitiv’s Stock Report Plus lists down quality stocks with high upside potential over the next 12 months, having an average recommendation rating of “buy” or "strong buy". The screener applies different algorithms for all BSE and NSE stocks.
Volatility never gives notice before coming and again on Monday, it did not give one. The difference is that this time the impact of volatility was felt by more investors and traders. There are two probable reasons, list of top loser on Monday was dominated by PSU stocks which have been the best performing set of stocks in last few weeks and that all those who only recently realized that there is something called PSU and jumped on the bandwagon are probably looking at their phone and saying why have their portfolio has fallen so hard. Second, the overall market breadth was extremely bad which means more portfolios got hit. There is a high probability that volatile movement in broader markets might continue for some time, So, it would be better to stay prepared for volatility. One of the ways for that would be to stay with large caps and especially the ones which have shown streak of outperformance at a time when other large caps have been under pressure.