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Equity rout wiped out Rs 26 lakh crore; how should you position yourself now?

NEW DELHI: By the time you read this, Rs 26 lakh crore investor wealth is gone on the BSE, leaving many wondering when this selling frenzy will stop.

At Rs 133 lakh crore, market capitalisation of BSE stocks is off August high of Rs 159 lakh crore. A weak rupee, sticky crude oil prices, risk aversion in emerging markets on Fed rate outlook and liquidity worries are roiling the scene.

Compounding the worries, sentiment in global stock markets has turned negative, with US stocks wiping out this year’s gains.

The Nifty too is down 4 per cent so far this calendar in what is turning out to be a disappointing year for equities. There is no sign of improvement in stock market outlook in the short term either.

“Over the next 12 months, whether it is the US or Indian market, we are facing a similar set of circumstances of rising interest rates, rising cost of capital, a slowing economy. While corporate profits seem to be topping out in America, in India too it is reasonably clear that the second half of the year earnings growth will conk off again as the broader economic slowdown around the NBFC funding freeze kicks in,” Saurabh Mukherjea, founder, Marcellus Investment Managers, told ET Now.

Analysts believe that it’s a ‘sell on rise’ market for short-term investors and feel that long-term investors should wait for further correction to buy into stocks, mainly from sectors that have low correlation with the domestic macros.

This is what experts say:

Time still not ripe for value hunting

Vivek Mavani, an independent investment advisor, noted that domestic stocks have not just fallen now. They had been falling even when US markets were not falling in the last few weeks.

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“I do not think that we in the market are yet to go out and bargain hunting. It is not a ‘buy on declines’ market. It is market where you sell the rallies. What we are seeing in the last few weeks is entire sectors are going out of favour,” Mavani told ET Now.

Keep your gun powder dry

Jyotivardhan Jaipuria, founder, Valentis Advisors, says his company is sitting on a large amount of cash and is waiting for valuations to come down further.

Jaipuria said that given the fact that global markets too are trading at very expensive valuations, there could be one round of selling globally, which may bring further correction in domestic stocks.

“If we get that, we will get valuations which come down to reasonable levels. Even today, if you look at valuations, we are probably trading at like 16.5-17 times one year forward which is not exactly cheap valuations,” he noted.

52-week low does not mean stock is cheap
Over 200 stocks hit their 52-week lows on Thursday. Data suggest that three of every five BSE500 stocks have hit their one-year low in October. Independent market expert Ambareesh Baliga said one should not pick a stock just because it is at a new one-year low. One should pick stocks only if he believes the valuation is attractive compared to the state of the market.

“During bull markets, certain speculative stocks go up (ahead of their fundamentals) and then correct during a market downturn; it does not necessarily make them a buy opportunity, and we need to analyse further. We have to analyse the reasons for the fall in the stock — is it due to fundamental reasons, or is it due more to some negative news flow etc? Ultimately, what one should focus upon is whether the company’s investment thesis still remains intact, and that its long term corporate earnings growth projections are not significantly impacted,” said Sampath Reddy, CIO, Bajaj Allianz Life.

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Preserve capital & confidence

A recent study by Centrum Broking suggests that a sluggish market generally revives in 6-8 months. Bear markets are intense, disruptive, disorderly, erratic and unsettling, but generally are very short lived in comparison to bull markets, it said based on past few cycles.

“Top priority for investors in 2018 should be preservation of capital and confidence,” the brokerage had said.

Prefer stocks with low macro correlation

If one wants to utilise the fall to buy stocks, Mukherjea suggests sectors that have reasonably low correlation with the macro economy. “FMCG has low correlation with everything. It is almost like an economy on to itself. The IT sector is more linked to the rupee than the Indian economy. Pharma sector is a similar case,” Mukherjea said.


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