It’s A Stock Picker’s Mar­ket - Right Time To Adopt Bot­tom-up Ap­proach

Dalal Street Investment Journal - - EDITOR’S KEYBOARD - V B PADODE

Fi­nally, we have got a mi­nor cor­rec­tion in bench­mark in­dices, and I am say­ing ‘fi­nally’ be­cause mar­kets have been re­fus­ing to cor­rect, de­spite geopo­lit­i­cal con­cerns and earn­ings growth not match­ing the val­u­a­tions. I think the best part of the cur­rent mar­ket, which is un­nerv­ing a lot of ex­pe­ri­enced in­vestors and traders, is the lack of volatil­ity at the peak. Long term in­vestors might take respite from the fact that low volatil­ity stems from a solid macroe­co­nomic back­drop, re­flect­ing strong eco­nomic growth.

In­deed, macroe­co­nomic out­look for In­dia has never been bet­ter. Even on the global front, most of the ad­vanced economies are show­ing signs of sta­bil­ity. Dow Jones started the sec­ond half of this year on a strong foot­ing and touched record highs, thus mak­ing a strong state­ment for those who fear mar­ket fall.

In June, a sta­ble cur­rency and high in­ter­est rate dif­fer­en­tial be­tween In­dia and the US has kept the FIIS in­ter­ested in the debt in­stru­ments in In­dia. This trend may con­tinue in July as well.

While the cur­rent liq­uid­ity-driven rally may mod­er­ate ow­ing to con­cerns on height­ened val­u­a­tions, profit book­ing, un­cer­tainty around GST and the NPA is­sue lead­ing to cor­po­rate in­sol­ven­cies, the bullish sce­nario for eq­ui­ties re­mains in­tact. The mar­kets will at­tempt to as­sess the im­pact of dis­rup­tion caused by the GST and will take cues from cor­po­rate earn­ings in the April-june quar­ter.

In this is­sue, we have can­didly placed NBFC seg­ment as one of the hot spots in the fi­nan­cial sec­tor as we be­lieve the mojo lies with a se­lect group of NBFCS. Am sure you will en­joy the cover story with rec­om­men­da­tions.

Another in­ter­est­ing as­pect of the eq­uity mar­kets is the buzzing IPO mar­ket in 2017. I am ex­cited with the prospects of IPO in­vest­ing as so many qual­ity com­pa­nies are hit­ting the mar­kets with a lot of value on the ta­ble for the in­vestors, in­clud­ing re­tail in­vestors. Hope you will rel­ish read­ing some of the in­ter­est­ing as­pects of IPO in­vest­ing.

Com­ing back to mar­kets, in­vestors should stay cau­tious as al­ways and adopt the bot­tom-up ap­proach to in­vest­ing as now it is a stock picker’s mar­ket. As the num­ber of stocks touch­ing their record highs in­creased in June when com­pared to May de­spite poor per­for­mance of the bench­mark in­dices, it is crit­i­cal that in­vestors fo­cus on in­di­vid­ual stocks.

One of the mis­takes to avoid in a bullish mar­ket en­vi­ron­ment is to in­vest in penny stocks—one needs to con­trol this temp­ta­tion. Rest be as­sured of the strong fun­da­men­tals and pos­i­tive out­look on eco­nomic growth, which are the key driv­ers of eq­uity out­per­for­mance in the longer run. Buy on dips should be the strat­egy for those with a long-term view.

Happy In­vest­ing !

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