NEW-MARKET LEADERS IN NIFTY CORRECTIONS (PART – A)
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.
- The best stocks to bet in NIFTY corrections ( NIFTY fell from 11700 to almost 9850 in Sept. 2018) are the stocks which fall the least w.r.t market and from their 52-week highs or the stocks which continue to make new highs and fresh 52 week highs in falling market environment and shows abnormal price strength vis a vis rest of the market.Ex. During the correction in nifty in sept 2018. there are few stocks which are holding out very well such as BIOCON which has made fresh 52 week highs at 714 and JSW STEEL which is hovering around levels of 400-410 in such a tough environment and is holding out close to their highs. These stocks shall save our capital being eroded and will rise very fast once NIFTY stabilizes.
SECTOR SELECTION -:
The best stocks are the stocks from the best performing sectors/sectoral indices hitting new highs and the stocks if properly chosen from the right sectors shall always save the portfolio from a major hit and also help us to create big money. Ex. The markets are clearly showing signs that they are not liking anything few sectors like REALTY, INFRA, BANKING, NBFC but liking sectors like PHARMA, IT, CONSUMERS and FMCG with pharma and IT being the top pick. Even if people chose bad stocks but the sector selection is right, then also they will still be making money. That’s the beauty of right sector selection and much emphasis is needed to see the smart money moving into sectors.
BUYING VALUE STOCKS or VALUE TRAPS -:
The biggest mistake people make in NIFTY corrections is by buying stocks which are hitting fresh lows or have fallen more than 25% from their highs and they think that these are great value propositions. Ex DHFL shaved off 50% and fell from 600 to levels of 300 and Yes Bank fell from 400 to levels of 200 and many others. History has shown that when these kinds of trend reversals happen on long-term charts and medium-term charts, then it takes many months of consolidations and time /price wise pause before they make fresh up moves. Also, the stocks generally head lower and drift towards lower prices each passing day for many months. Hence, there is no need to hurry in buying such value traps.
TIMING THE MARKETS -:
People say that we should not try to time the markets. There is no harm in trying to time if one can do successfully. The tools of technical analysis help us to identify market tops and bottoms and we can always buy stocks 10% above the bottom and sell 10% below the top. That’s a tricky game which only a few handful people can do successfully. In a sense, all those people who are interested in buying DFHL, YES Bank, NBFC, PVT Banks can buy such stocks only when the markets give signals to buy those stocks. There is no need to rush and buy stocks in such bloodbath and mayhem on street. The markets always give signals when stocks and sectors bottom out and begin fresh moves. Spending time in stocks which are in a bear market is like losing the cost of capital unnecessarily.
- Often it’s being said that.” Buy stocks when there is blood on street.”I would rather say that avoid investing in such mayhems as its the blood of our own family members and let the blood be cleaned off so that we can walk down the road with calmness and see the path crystal clear. Because we can’t estimate the blood which is yet to flow. So, It’s important to be cautious and follow the gradual systematic investing approach in major NIFTY falls and no need to rush to invest seeing blood and carnage as we can also erode base capital in such NIFTY Crash.
(Must Read Part – B)