NEW DELHI: With benchmark indexes Nifty and Sensex skidding around 6% in 2022 so far, many financial gurus are advising investors to accumulate stocks that are available at attractive prices.
Consider this, one of the most talked about stocks Tata Motors was last week trading at around Rs 375 a price as against its 52-week high of Rs 536.
Similarly, shares of HDFC have plunged 26% from its 52-week high level while those of HDFC Bank fell over 19%.
Bajaj twins- Bajaj Finserv and Bajaj Finance, too, have plummeted up to 20%
However, this strategy, often called buying on dips, seems to be not working for traders and short term investors at the moment.
There are multiple examples in the market that the stock, especially of new-age internet companies, has hit fresh lows in successive trading sessions.
Analysts feel while long-term investors can make invest in fundamentally strong companies, short-term investors should gauge their risk appetite before buying equity in this volatile phase.
“The geopolitical tension due to the Russian-Ukraine crisis is creating a negative impact not only on their country but also across the world. We have seen crude prices spike to the roof. The soaring crude oil prices have in turn made the Indian stock market volatility and the rupee hit a low,” said Yash Gupta, Equity Research Analyst, Angel One Limited.
He added, “We expect the market to be volatile till the conclusion of the Russian-Ukraine war. We suggest investors deploy 50% of their fresh investments in markets as any negative news on geopolitical tension can impact the global market adversely.”
International benchmark brent crude futures cooled down to close at $112.67 a barrel on March 11, falling sharply from $139 during the previous week.
Crude remains an important factor for India and its market as the country imports more than 80% of oil requirement.
Tricky strategy
Deepak Jasani, Head of Retail Research, HDFC Securities, said that if the investor is underinvested in equities, he can start adding to equities in a systematic manner in Nifty stocks or stocks where he has done detailed analysis and in case the investor is fully invested, then it would be a good idea to cut the weight on rallies by exiting stocks that have disappointed recently in terms of financial performance or have risen quite a lot.
He added that there is no right or wrong time to add on dips as the markets are dynamic and the earnings data and valuation parameters keep changing from time to time.
For long-term investors, according to Jasani, large dips in the market offer a great opportunity to add provided they have cash left to invest.
This means that they keep taking profits on steep rises in stock prices and rebalance their stock weightage in their overall portfolio.
However, adding on correction is a tricky thing to do as if you are too early, and the markets keep falling you will run out of cash and feel foolish.
If you are too late then on upward reversal you may be too late to add and miss the opportunity.
Hence a staggered add on dips is preferable and investors can start small and keep adding more and more on dips to bring down their average buying cost, he said.
High uncertainty
Following a major crash when Russian Forces first invaded Ukraine, India’s equity market last week ended in postive after registering losses for four straight weeks.
Supported by really in metals, infra, IT, energy, FMCG, pharma and oil & gas stocks as most stocks where available at 10-30% discount from their 52-week high, the Nifty jumped 385 points, or 2.4%, to 16,630, and the Sensex rallied 1,216 points, or 2.2%, to 55,550.
India VIX, also known as fear index, closed at 25.34 levels on Friday, down more than 9% on weekly basis and falling 25% from its recent high of 34 levels on February 24.
However, one positive week in unlikely to overcome multiple challenges the market is facing at the moment.
Brokerage firm Morgan Stanley last week cut its CY2022 year-end Sensex target to 62,000 from 70,000 earlier, implying an 11.8% upside from Thursday’s closing of 55,464.39.
Alternative to Equity
Advising on alternate investment, Jasani said that gold and Bank savings account/FD are the best alternatives for people who are afraid to start adding equities.
Some private Banks offer a high rate of interest on savings account.
Debt mutual funds suffer from MTM (market to market) related falls in their NAV (net asset value) when interest rates keep rising or the credit rating of the investee companies fall.
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