Market Correction An Opportunity For Bargain Hunting

The month of June started on a strong note with the BSE Sensex and Nifty clocking all-time highs and closing above the landmark levels of 40,200 and 12,000 for the first time in their history. On the domestic economic front during the week, the news was not too pleasing to the investors' ears. The RBI went for a 25 bps rate cut as expected by the market participants. However, the key question nagging newbies and seasoned investors these days is: The stock markets are trading at historical high PEs, so which stocks should I get into at the current levels? Being in the markets for over three decades, we at DSIJ have observed that most people traditionally tend to fancy stocks which have seen a steep correction in their prices or stocks which are modestly priced. They tend to do so because many of the investors seem to believe that a modestly priced stock has a greater chance of going up higher than a stock which is priced significantly higher. So, it may not seem as likely to see a Rs 1000 stock jumping to Rs 2000 as seeing a Rs 50 stock jumping to Rs 100. Secondly, they are of the opinion that buying a Rs 50 stock will help them fetch a sizeable number of shares, while a high-priced stock will not get them a significant quantity. Now, we are in the one of the best bull markets that the world has ever seen--a bull run that has seen new record highs on a consistent basis. The benchmark indices are setting up records every now and then. So, the investors think, why not buy a few modestly priced stocks to take advantage of this bull run? Well, the problem comes down to the overall performance of the market. Understand that if you come across a Rs 50 stock that looks promising, you may want to take another look, because if this stock has not moved much in today’s market, the chances are it is not going to. It is not like there is some kind of a deluge and that every stock will go with the flow of the markets.

So, this brings us to a question: what is the roadmap to be a successful investor at the current juncture? Most importantly, it is important to explore the business the company is in. Don’t buy a stock for namesake or based on the herd mentality, buy only if you understand the business inside out. Identify the companies which enjoy wide economic moats that can help them brush off competitors. Enter in the stock which offers you, as an investor, a margin of safety. Lastly, as investors your focus should be on a long-term commitment and less on short-term price fluctuations.

The global markets which were seen underperforming the Indian markets over the last week or so. This was due to the trade war tensions and the fear of recession looming large as the US yield curve inverted to the widest levels since 2007. However, the panic has just eased and buoyancy has returned on the Wall Street, especially after comments from the Federal Reserve Chairman Jerome Powell suggesting a rate cut was in the offing to sustain domestic economic expansion.

Technically, the Nifty has retreated from the all-time highs, but the zone of 11,600-11,700 is the crucial support level, and therefore, any cooloff towards these zones in the coming days will attract bargain hunting and investors can accumulate quality stocks. We view this correction as a routine profit-booking phase and, eventually, Nifty will head towards the next logical target of 12200-12320 in the current uptrend.