Worldwide markets are panicking, Dow Jones is down 15%.
The reason is well known - Corona virus. There is fear that world wide growth will slow down.
Now when there is a market panic, there is very less rational thinking & usually its basket selling which takes everything down with it. Don't believe me ?
Sales of Corona Beer (#3 beer brand world-wide) have dropped even when it has nothing to do with Corona virus ! Have a look below
We would feel like laughing at this absurd behavior, but hey its our hard owned money that is getting wiped out due to this collapse.
Now the common question that each market participant gets is:
1. Should we buy more stocks ?
2. Should we sell & salvage whatever capital is left
3. Should we ignore the on-going correction & stay put ?
I belong to the school which thinks 'Never waste a market correction'. Reasons ?
1. Agreed that there will be disruption in supply chain due to China & few other major countries shutting down but there have been confirmed reports that shipments are getting back on track.
2. Though the growth will slow down, it should be temporary & we should see a V shaped recovery
3. Central banks world-wide will infuse more liquidity (which has been fueling this current bull market); there is a coordinated interest rate reduction coming up by global central banks along with a surprise asset repurchase programme.
4. Trump can't afford a big negative year for markets when election are due within 8 months (since his appointment, US markets have given excellent returns and he won't give up when he is so near to the elections )
But then the biggest mistake that fellow investors make is that they buy the most beaten down stocks assuming that they will recover the most. This thesis generally goes for a toss since at each bounce that these stocks see, there are sellers who want to liquidate at their cost price & get out. This puts pressure on rising stocks.
The principle to follow here is: 'Buy those stocks who have stood firm in this steep correction. They are the ones who lead the next rally'.
To understand what I mean by stability, first look at this chart of Nifty & see the severity of correction
Nifty
Nifty is down 10% which is very big for a front-line index
I have identified few stocks (this is purely for educational purpose & to check the validity of this thesis) which have stood tall in this correction & are fundamentally strong as well. Remember this, never venture into stocks which are not backed by good earnings growth. These are like pack of cards and go into free fall on slightest of external push.
Midhani
This stock has actually bucked the trend and increased in price; surprised ? Thats called strength.
AU Small Finance Bank
Solid as rock. Thats stability
Divis Lab
One of the beneficiary of China shutting down as it backwards integrated
Metropolis
More patients will opt for diagnostic tests ? May be, but the stock is standing tall.
Another strategy which can be adopted is to buy stocks which are at long term supports and have been giving good earnings. Few of the stocks belonging to this category are:
Info Edge (Naukri)
200 DMA has acted as support, will it work this time as well ?
Bajaj Finance
Credit access
Solara Active Pharma
It will be biggest beneficiary of Corona virus shutdown due to its API portoflio
I am not saying this is an exhaustive list; but this is an important filtering criteria. It has worked in past & good chance it will work now as well.
Another important thing to understand is that you may not have sufficient cash to deploy here. In that case the strategy to be followed is to 'Sell the losers and buy the winners'
People usually do the opposite by cutting the flowers and watering weeds.
Identify the worst hit stocks from your portfolio, reduce them & add to your strongest ones.
Stocks which are withstanding this correction are doing it for a reason, respect the price action & take advantage of it.
Disclosure: I am not a SEBI registered investment advisor. The content in this blog are academic in nature, please consult your investment advisor before taking any investment decision; I may have position in stocks discussed on the blog
The reason is well known - Corona virus. There is fear that world wide growth will slow down.
Now when there is a market panic, there is very less rational thinking & usually its basket selling which takes everything down with it. Don't believe me ?
Sales of Corona Beer (#3 beer brand world-wide) have dropped even when it has nothing to do with Corona virus ! Have a look below
We would feel like laughing at this absurd behavior, but hey its our hard owned money that is getting wiped out due to this collapse.
Now the common question that each market participant gets is:
1. Should we buy more stocks ?
2. Should we sell & salvage whatever capital is left
3. Should we ignore the on-going correction & stay put ?
I belong to the school which thinks 'Never waste a market correction'. Reasons ?
1. Agreed that there will be disruption in supply chain due to China & few other major countries shutting down but there have been confirmed reports that shipments are getting back on track.
2. Though the growth will slow down, it should be temporary & we should see a V shaped recovery
3. Central banks world-wide will infuse more liquidity (which has been fueling this current bull market); there is a coordinated interest rate reduction coming up by global central banks along with a surprise asset repurchase programme.
4. Trump can't afford a big negative year for markets when election are due within 8 months (since his appointment, US markets have given excellent returns and he won't give up when he is so near to the elections )
But then the biggest mistake that fellow investors make is that they buy the most beaten down stocks assuming that they will recover the most. This thesis generally goes for a toss since at each bounce that these stocks see, there are sellers who want to liquidate at their cost price & get out. This puts pressure on rising stocks.
The principle to follow here is: 'Buy those stocks who have stood firm in this steep correction. They are the ones who lead the next rally'.
To understand what I mean by stability, first look at this chart of Nifty & see the severity of correction
Nifty
Nifty is down 10% which is very big for a front-line index
I have identified few stocks (this is purely for educational purpose & to check the validity of this thesis) which have stood tall in this correction & are fundamentally strong as well. Remember this, never venture into stocks which are not backed by good earnings growth. These are like pack of cards and go into free fall on slightest of external push.
Midhani
This stock has actually bucked the trend and increased in price; surprised ? Thats called strength.
AU Small Finance Bank
Solid as rock. Thats stability
Divis Lab
One of the beneficiary of China shutting down as it backwards integrated
Metropolis
More patients will opt for diagnostic tests ? May be, but the stock is standing tall.
Another strategy which can be adopted is to buy stocks which are at long term supports and have been giving good earnings. Few of the stocks belonging to this category are:
Info Edge (Naukri)
200 DMA has acted as support, will it work this time as well ?
Bajaj Finance
Credit access
Solara Active Pharma
It will be biggest beneficiary of Corona virus shutdown due to its API portoflio
I am not saying this is an exhaustive list; but this is an important filtering criteria. It has worked in past & good chance it will work now as well.
Another important thing to understand is that you may not have sufficient cash to deploy here. In that case the strategy to be followed is to 'Sell the losers and buy the winners'
People usually do the opposite by cutting the flowers and watering weeds.
Identify the worst hit stocks from your portfolio, reduce them & add to your strongest ones.
Stocks which are withstanding this correction are doing it for a reason, respect the price action & take advantage of it.
Disclosure: I am not a SEBI registered investment advisor. The content in this blog are academic in nature, please consult your investment advisor before taking any investment decision; I may have position in stocks discussed on the blog
nice article
ReplyDeleteGreat sir
ReplyDeleteAgree completely..In the last fall during nbfc crisis, I observed few stocks that were making new highs- Dr reddy, Divis lab, bajaj finance,muthoot fincorp, titan, tasty bite etc. They indeed emerged as winners later on..
ReplyDeleteExactly. This is a strong pattern which has worked always. Lets see how we do this time. Do post if you find other such opportunities
DeleteCapacitor Infra
ReplyDeleteStock has been in a down trend. Clearly avoid
Deletelogical article.....good job
ReplyDeleteGood one
ReplyDeleteVery Good work done Rohitbhai. The stocks look quite gud mix of techno funda. Will wait for your next post. Cheers
ReplyDeleteOne of the best article Sir, How to find this stock, any scanner? all this stock near all time high, Will wait for your next post. Cheers
ReplyDeleteThanks a lot. I use publicly available screeners like one in money control to do the basic screening post which it's upto the chart reading to pull the final trigger. I plan to cover this process in one of my posts. Do subscribe to my blog so that you get further updates.
Deletesend your contact detail whatsup to 9080770456
ReplyDeletePlease DM me on my Twitter handle..
DeleteVery informative
ReplyDeleteOnline investment education is a gift. The other modes of learning to invest financially are news papers related to business, dedicated news channels and gaining knowledge from person to person through good financial brokers and friends. Various financial institutions provide classes for investing financially, beginners can avail to make positive use of it. It would be wise for any individual to learn and get trained through online investing education to benefit from investing financially. how to be successful
ReplyDelete