In the last few trading sessions, domestic equity markets have lost at least 3%. To be precise, that number is for the large-cap indices. Mid- and small-cap indices have lost close to 4%. The recent fall is reason to rejoice if you were worried that market valuations were getting ahead of themselves. This could be the window of opportunity you needed to buy equity.
The fall can be attributed largely to external global factors rather than domestic macros or a change in earnings growth assumptions.
Dhananjay Sinha, head of research, Emkay Global Financial Services Ltd, said, “Global liquidity surge was a factor driving capital markets globally, including emerging markets. As much as these external factors resulted in the up move, they are responsible for the fall as well.”
While this correction can be seen as an opportunity for long-term investors, the theme remains bottom up stock picking rather than a broad-brush market.
Toral Munshi, director-wealth management, head India equity research, Credit Suisse Securities (India) Pvt. Ltd, said, “Valuations are relatively high, but the earnings upgrade cycle will compensate for that. In some cases, the growth assumptions aren’t fully factored in. One has to be bottom up-focused.”
Market experts aren’t yet putting their weight behind low value and cyclical stocks. The interest firmly remains in stocks with earnings and cash flow visibility. These are mainly stocks from consumption led sectors such as FMCG, automobiles, and housing finance. In a recent Mint Money story, experts reiterated that individual stock fundamentals are important. Read it at: http://mintne.ws/2c9rKBD.
Other than this, experts suggested that value is emerging in sectors such as health care and information technology, where some correction has already happened but, long-term growth can be visualised.
Sinha said, “These sectors have seen a fair amount of correction and we are now seeing value emerge. However, one has to be selective, especially after the profit warnings coming from some companies.”
At this juncture, don’t try to look for cyclical recoveries in earnings; instead, stick to high quality. Shyam Sekhar, founder, ithought, a Chennai-based mutual fund advisory firm, said, “It is a good time for buying into long-term earnings, which are 2-3 years away rather than earnings for the next couple of quarters.”
For the average retail investor timing the market may not be a viable solution due to lack of market awareness. For them, investing in equity is best done on a regular basis—monthly or quarterly—and by linking it to a goal.
If you have idle cash use the correction to buy more of the stocks and mutual funds you already hold.
However, stagger the buying because global political and economic uncertainties can keep markets volatile for the next few months.