Since the beginning of August, investor sentiment has dipped considerably – the broad market index corrected by as much as 4% off its peak in less than a week.
The reason behind this sharp turn in sentiment lies in US economy going into recession , Unwinding Yen Carry trade and tensions in Middle East
The correction in India has remained relatively muted owing to support from domestic investors – in the week since Japan’s announcement. The Indian equities market has reduced dependence on overseas or foreign institutional/portfolio investors (FIIs/FPIs) which should help ride out this period of uncertainty.
Nevertheless, the long-term growth story of India Inc. remains intact. So, any significant corrections should be used as opportunities to stagger investments.
In these type of markets , investors getting hurt higher chance if you chase past winners especially with low quality low growth , thematic sectors . Rising Midcap and smallcap to Sensex ratio suggests frothy & expensive valuation.
Expect market to reward companies with high growth and high quality stocks. Large caps valuations are pretty favourable at current times , received only Rs.1 out of every Rs.10 net inflows in Mutual funds
IT, FMCG, Pharma, Consumer durables could be used as the “best places” to save oneself from any correction as these sectors could correct less than manufacturing and cyclicals.
As investors, what should we do:
1 . Dont panic – Wait for markets to settle and stabilise
2. Dont stop SIP – long term investments to continue
3. Be aware of your financial goals and keep some cash in hand for buying
4. Stay away from Small and Mid-cap – frothy , expensive valuations
5. Stay away from sectors which have given great returns in last couple years
6. Build strong core portfolio with large cap stocks, strong businesses.
7. Can think of profit booking in stocks which has given good run
Robins Joseph, SEBI Registered Investment Adviser, Certified Financial Planner. Founder of MyGuide2Wealth (www.myguide2wealth.com) based in Noida specializing in wealth, investment, retirement services with clear aim of Spreading financial literacy and advocating on India’s strong equity story
