It just zipped past! You may not have noticed it. Yes, we are talking about the stock markets.
In less than two months, the Nifty 50, Bank Nifty and other sectoral indices sprang back with a vengeance, registering gains of 15-20%.
The Sensex has reclaimed the 60,000 mark after four months and Nifty 50 is close to 18,000. The markets did not wait for you, while you waited on the sidelines. What next: Chase the markets now or wait and watch?
This is the big question on every investor’s mind. Chased away by a battery of bearish events (the Russia-Ukraine war, oil price shock, inflation, rate hikes, drying away of liquidity, recession fears and back home, Paytm’s debacle and LIC’s disappointment, among others), investors simply kept cash in the hope of preserving capital at hand.
All the bearish influences listed above are still around. The dark clouds are still on the horizon. So, what’s changed?
The ‘Patient Bear’
Some call it a rally in a bear market, others say that there are signs of a turnaround. Bank of America Securities says, “we remain patient bears’’.
A leading stock investment advisor, who we approached, didn’t want to stick his neck out: "This is too short term for us. We don’t know any of the answers here… But there are others who say there is still some steam left in the rally."
Whatever it is, you have missed the bus if you are in the sideliners’ camp.
At BQ Prime, we attempt to get answers to the following questions:
If you want to chase the rally, what are the risks you face?
Is there more steam left?
If you still want to invest -- how, how much and where?
In this special series, we will bring answers from a cross-section of market experts who will help you in these times of turbulence.
Nifty 50’s 60-Day Run
From June 17 to Aug. 17, 2022, the Nifty made an astounding comeback, narrowing the gap from its peak to a large extent. It is still below the all-time high of 18,600, but it’s not too far a distance to be covered if the current momentum is sustained.
Banks and autos have been the major contributors clocking a gain of 20-21%, while FMCG supported with a 19% gain.
Banks stunned the markets, despite the HDFC twins struggling to break out of the merger ‘blues’ which have overshadowed their bluechip status. Information technology was a bit late and also ran with a gain of 13%.
Nifty Did Not Rely On Reliance
Reliance Industries Ltd. does not fit into any of the sectoral indices shown in the table. It’s an index in itself given its heavyweight status and the variety of businesses housed under one sky.
Nor did RIL do much to fuel the Nifty. It just clocked 2.9% gain during the period under study, bogged down by the fuel export tax. RIL is still down 7% from its peak.
They Have Already Run Up…
The Bajaj twins (Bajaj Finserv Ltd. and Bajaj Finance Ltd.) were the stars.
From Scorpio-N-fired Mahindra and Mahindra Ltd. to Sandeep Bakhshi-backed ICICI Bank Ltd., a number of large-cap stocks have hit their all-time highs. They have notched up gains of 20-45%.
The stock-specific story is also one that may trigger the fear of missing out.
A detailed list of stocks is presented for ready reference in the adjoining charts.
Get Back Or Wait And Watch!
If you chase the rally, you may face the risk. If you don’t, you may miss out. This dilemma is not new. It keeps coming up in every phase of the market.
In the bull run, greed blinds; and in the bear phase, fear drives investors away. This is common and natural to most investors.
One way of beating this problem is to keep doing SIPs in mutual funds over a period of time. But that’s a different story, well told over and over again.
But for retail investors, it’s a matter of missed opportunities vs messed-up investments.
We present views and strategies suggested by a team of experts. Since it’s a here-and-now question, most experts we interviewed are using charts to help navigate the current market scenario.
Veteran market expert Deven Choksey prefers a disciplined approach as opposed to chasing the rally.
“India is a structural bull story. Backed by GDP growth of 7.5%, promises to be a $5 trillion economy in 4-5 years and 15-20% average growth in corporate earnings by India Inc., it is attracting FPI and domestic investors in every dip, every price correction in markets. Our approach is selective and we do disciplined buying during corrections.”
Caution is the watch-word for Abhijit Phatak, head of marketing and business development at Definedge Solutions. “Markets have run up too fast, and fresh longs at these levels can be risky; it is always better to book partial profits.’’
He doesn’t see much upside: “Nifty can rise till 18,000-18,100, but going beyond that in this leg might be difficult.’’ Fresh investments are not advisable, he says.
Chandan Taparia and Rohit Srivastava bring in charts to help investors navigate while Gurmeet Chadha focuses on a disciplined, long-term approach to investing. He lists the fundamental risks to the market emanating mainly from geopolitical developments.
As pointed out by Gautam Shah in an interview, this is a unique bear market and the risk-reward has to be weighed if one wants to get in at this stage. He suggests looking outside the Nifty or the Nifty Bank to be able to make money.
But Mayuresh Joshi has a different take. He doesn’t see much risk at this stage. “Currently, the risk to the market rally is very low. We track the risk or weakness in the market with the help of distribution days. We count a distribution day when the market falls by more than 0.2% on volumes higher than the previous day. The emphasis during fall is on volumes i.e. if strong hands such as institutional investors are exiting the market or not."
According to him, currently, the Nifty looks well-placed trading above its 50-DMA and 200-DMA, though it is still to reclaim its previous highs. "Overhead supply near previous highs can make the market a little jittery but till the point in time, market stays above its 200-DMA and 50-DMA and distribution day count on the market remains low, the rally is likely to continue.’’
However, Joshi lists the risks: “Global macros, such as recession in major developed markets or elevated commodity prices or geopolitical shocks, can create jitters in global equity markets. Having a set of rules is very important and don't let emotions drain your investments.’’
This again will be measured by distribution days, which could point to a downward pressure. In which case, “it’s better to protect capital rather than bottom fish and getting our hands burned with falling knives’’, he said.
If one wants to continue to invest as markets are in confirmed uptrend then “you should look at stocks that satisfy most of the CANSLIM parameters’’, he points out.
CANSLIM stands for current and annual quarterly earnings, new products/services, supply-demand, leaders/laggards, institutional ownership and market direction.
The most important question–how much to invest. Joshi sums it up well: “...that will depend on one’s risk tolerance levels and one should not invest all at once and should follow a pyramiding strategy i.e. increase allocation as the stock moves higher.’’
The risks and opportunities will continue to play out. How an investor navigates depends on individual risk-taking ability, cash surplus and investment duration, besides research. For those who don’t have time/required skills, mutual funds are a way out.
Watch | Gautam Shah, Gurmeet Chadha, Chandan Taparia And Rohit Srivastava On Investors' Strategy:
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