Anxiety, agitation, fear, and loss of patience are the basic traits of the bear market phase.
The S&P BSE Sensex has fallen 9,400 points or a little over 15 per cent from a record high of 62,245 recorded on October 19, 2021. The Nifty50 has fallen nearly 3,000 points in the same period.
Markets have witnessed many such falls in the past. When the tides are low, it takes down all the ships. Such a scenario triggers panic among investors, who forget this could in fact be the best time to accumulate stocks.
As a normal behavior, uninformed investors often catch a falling knife. If an investor is indecisive, the best strategy that works is to hold the positions.
Falls generally take a quarter or two to cover the lost ground. It is a great opportunity to buy at dips as valuations of most companies get realigned during such a phase
Many counters in the Nifty50 basket with at least 22 per cent CAGR in the past 3 years have took a beting in the recent fall, delivering a negative alpha of 5-20 per cent over Nifty50 in the last one month.
These stocks can be considered as a value buy opportunity:
Factors like lower PE/PB acts as a good indicator to start with. But one should remember that these ratios alone may not always result in a value buy. They could also be potential value traps.
Multiple factors like earnings stability, good governance and low debt, among others, can be looked into. A look at critical ratios on liquidity, performance, and values are also noteworthy.
Large caps are the safest bets as these stocks go up the faster when the markets are in recovery mode. Stocks that are part of the top brass in the Nifty50 basket have seen a fall of 12-29 per cent in the last month.
These are good quality stocks and the list has many good-to-have stocks in the portfolio. Having a quality stock in your portfolio at a lower price is the best investment one can make.
Value buying in a falling market is like jumping on the bandwagon to reach your destination at a much faster pace in a shorter time.
(The author is Sr Vice President – Product Engineering at 5nance.com)