NEW MARKET LEADERS IN NIFTY CORRECTIONS (PART-B)

By | September 28, 2018

NEW-MARKET LEADERS IN CORRECTIONS (PART – B)

What set of stocks/sectors to buy and bet during tough and volatile stock market environment when every day stocks are hitting fresh 52 week lows due to falling broader indices like NIFTY, MIDCAP INDEX or SMALL CAP INDEX?

We at Grivaa did a lot of research in finding out this answer and studied across various cycles in the past 30 years and came up with some important answers.

SECTORAL ROTATIONS, CHANGE OF LEADERSHIP, PORTFOLIO CHURNING, CREATING ALPHA BY RIGHT STOCK AND SECTOR SELECTIONS IN MAZOR MARKET FALLS /CORRECTIONS -:

 INVESTMENT /PORTFOLIO BUILDING IN SECTORAL/ NIFTY FALLS -:

  1. Investing is about knowing what to do but its equally important to know what not to do. Through this, we mean to say that the stocks which are hitting fresh 3 month lows and fresh 52 week lows are the stocks to be avoided because there will be value traps and there are reasons why those stocks are falling. Nifty and Sectoral indices give hints about sectors to bet and avoid. Ex. Markets are clearly giving signals to avoid NBFC in a big way and we should not be too daring to challenge the market mood. Roaring and hungry tigers should be avoided. Even if people want to buy NBFC, then they should just stick with the top 2-3 best stocks in that sector Ex. Bajaj Finance. It’s been observed that only the fittest and finest horses should be bet when the market falls occur and not every horse can win in the race course.
  2. There are always sectoral churns and rotations happen during corrections and leadership changes from one sector to another. EX during Jan 2018 correction, the leadership of metals, real estate, chemicals, carbon, shifted to the underdogs of 2017. The underdogs of 2017 were FMCG and IT and they became the leaders of 2018 post-market recovery. The sept. correction in 2018 once again changed the leadership status of sectors. The underdog pharma which was nowhere in the picture in entire 2016-17 and mid-2018 has taken the stalwart status followed by IT post sept. 2018.
  3. Grivaa follows a very unique vector addition method in stock selections. We consider Market Direction of Nifty as Vector A, Sectoral Direction of that stock as Vector B, Stock itself as Vector C. The goal is to find stocks where the resultant vector is positive and all of them are adding positively in the same direction.  Stock performances are always the sum of the parts of the various forces.
    VECTOR ADDITION EXAMPLE -: NIFTY made a fresh high in JULY 2018 (Vector A) and the FMCG Index made new highs (Vector B) and then we selected top stocks like HUL, Britannia, Nestle, and these stocks  gave stellar and supernormal returns as all the three forces /vectors added positively in the same direction. This is a unique vector addition strategy which has been developed by our team.
  4. Markets need focused, dynamic and flexible approach and we should be open to make big adjustments and shifts and listen to market veterans to understand the broader direction and mood of markets. A lot of people say we should not listen to day to day news. I would deny this approach as people who didn’t follow the NEWS from SEPT 22-SEPT 28 2018, will have a lot of low quality and junk NBFC in their portfolios like DHFL, REPCO. So, a Retail investor should stick with either large caps or invest in MFS through SIP Route only so that the portfolio damage can be avoided.
  5. History has shown that if we don’t do these tactical adjustments and don’t shift our stock holdings towards these new leaders and outperforming sectors, we shall underperform in a big way and will miss the big money in markets. So, Cleaning of portfolios or reducing weights in underdogs and backing the new leaders is a must. Herein, Markets are signaling a change of mood from Pvt financials and NBFC to pharma in a big way. We are quite hopeful that pharma stocks can give 30 to 50 percent returns in the next 6-12 months quite easily.
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