Time to buy? 27 stocks in largecap index fall 10-30% from highsTime to buy?

As many as 27 stocks in the BSE Largecap index have fallen 10-30% from their respective 52-week high recorded in 2019

Benchmark indices have fallen 6-8 percent from their respective record highs registered in June 2019 but the big carnage was seen in individual stocks, especially in the small and midcap space.

Largecaps displayed more resilience at a time when most of the stocks were trading in a downtrend. There are as many as 27 stocks in the S&P BSE Largecap index which have fallen 10-30 percent from their respective 52-week high recorded in the year 2019.

Some of the stocks which are available at a discount include names like L&T, Axis Bank, Bajaj Finance, Titan Company, Shree Cement, Siemens, Bajaj Finserv, Dr. Reddy’s Laboratories, HDFC Bank, HDFC, Bajaj Auto, and ICICI Bank.

So can we say all stocks in the largecap index are strong buy even though they might be available at a steep discount? Maybe not, say experts.

Some of the stocks which are part of the largecap index have seen massive wealth erosion in 2019 largely on account of fundamental or structural factors. But, there are some stocks which are still good buy on dips stocks.

Factors like economic slowdown, liquidity concerns, lack of any big bang announcements in budget and surcharge on super-rich including the FPIs (which has been rolled back recently), etc. led to muted investors sentiments, which have dragged the markets down in 2019.

“Amongst the stocks mentioned above, we believe one should invest in ICICI Bank, Bajaj Auto, Tech Mahindra, Aurobindo Pharma, BPCL, etc. in a phased manner as these companies are fundamentally sound with strong financials and have the potential to earn healthy returns over the long term. However, one should avoid investing in PNB (growth concerns) and UPL (high debt levels),” Ajit Mishra, Vice President, Research told Moneycontrol.

Generally, during market corrections fundamentally strong stocks correct lesser than the general market because of their inherent fundamental strength which can be seen in the table above.

“Stocks correcting more than 30-50 percent run the risk of falling further and therefore should be avoided especially if the index has corrected just by about 9 percent so far, which is the current situation,” Umesh Mehta, Head of Research, SAMCO Securities told Moneycontrol.

“Stocks like ICICI Bank, HDFC Bank, Bajaj Finance, Siemens, Shree Cement have all fallen less than 20 percent while the broader indices have fallen over 30-40 percent. By identifying such relatively strong performers investors can get to know about the fundamentals of sound companies. For eg., ICICI Bank, HDFC Bank, Dr. Reddy’s have the highest consensus brokerage targets. Investors should, therefore, focus on such largecap stocks,” he said.

The Nifty index is currently at about the same level as it was at the beginning of the year and is trading with marginal gains so far in the year 2019, but has fallen by about 9 percent from its respective 52-week high.

Correspondingly, stocks have corrected in various proportions from their highs and give an opportunity to investors to accumulate largecap blue-chip stocks at these levels which investors should make use off.

“Simultaneously, there are a few stocks which have delivered solid performance in Q1FY2020. We accordingly prefer stocks like Titan, Bajaj Finance, HDFC Bank and HDFC Ltd,” Atish Matlawala, Sr Analyst, SSJ Finance & Securities told Moneycontrol.

“We would also recommend accumulating stocks like ICICI Bank, Axis, Siemens, UltraTech Cement, Larsen & Toubro at different price intervals should they continue to see further price corrections,” he said.

4 steps for investors to ride roller-coaster markets

Jump off and you will get hurt. Stay on through all the bumps, you will survive and come back for more.

 For the investor who knows what he is doing, volatility creates an opportunity, said John Train, an American investment advisor and author of many books on investing.

Alas, this is not the case with most investors. Notional losses have got investors concerned about their investments. In my interactive sessions, I have been meeting investors, who have partially exited equity investments, stopped SIPs and have doomsday predictions about the markets. Some investors have moved back to traditional investments such as fixed deposits, gold and endowment policies. This is probably why they say that Investors’ worst enemy is not the stock market but their emotions.

Fear of losing money makes people take terrible financial decisions. First, they don’t invest in equities and, even when they do, they exit at the slightest hint of volatility and re-enter once markets have rebounded, thus losing out on the market rally. This really means that they seldom make money in equities and are always bad mouthing equity linked investments such as mutual funds.
Here are a few steps to follow when the markets are on a roller coaster ride.

Assess why you chose a particular instrument
Have you done it keeping a financial goal in mind? If not, first build a financial plan. A financial plan will help you know how much to invest for each goal and for how long. If you invest without a goal in mind, your mind will get tuned to thinking about the investment for returns alone, thus, making you focus only on short-term market movements. Once you invest for a goal and know the time horizon, you will not usually react immediately to volatility.

Keep out the noise

Every source of information – TV channels, newspapers, financial websites, and social media – tend to amplify both good and bad news. The information overload causes more harm than good. The more the information you consume, the more anxious you become. This anxiety makes you overreact and take terrible financial decisions. Use news for information and not decision making.

Do not over-monitor your portfolio.

It is a well-known fact that people who trade often on their portfolio do not really make more returns than those who follow a buy-and-hold strategy. I have come across investors monitoring fund NAVs or stock prices daily through various apps and I wonder how this helps them. In fact, I would think that monitoring the portfolio movement on a daily or even weekly basis would lead you to taking wrong decisions as you may exit in situations of temporary volatility too. Checking the portfolio once a quarter would actually suffice.

Remember the laws of nature

Markets cannot remain static. Each time after a downturn, markets have rebounded after a while in a big way. This is true in India and in other world markets as well. There will be ups and downs. But, over long term, returns will average out. The key is to remain invested during the downturn. Sitting tight (like you do on a roller coaster ride) through the volatility should be the mantra.

Take Financial Advice

Investors often tend to follow a herd mentality due to which their portfolios are over-concentrated in a particular asset class or sub-category – over exposure to mid-cap/small-cap stocks/funds. An advisor can stop you from churning investments based on market movements. Find a fee-only financial planner who will work with you on your financial plan and help restructure the portfolio, if required.