Think, Strategise and Reinvest
In the previous editorials our cautious tone and advice to book profits might have looked out of sync when the markets just appeared to keep going up day after day. We also highlighted our concerns regarding valuations and that the risk-reward relationship was not in favour of the investors. The current market correction, which has made the market cheaper since November 15, very much validates our advice. And all those who paid heed are the ones smiling today. Do note that the bears have found a perfect companion in the form of ‘Omnicron’ to puncture investors’ conviction on equity returns.
The risk-off trade has already pushed FIIs on the back foot, leading to withdrawal of capital from the markets. Added to this is the recent announcement of the Federal Reserve tapering expected to commence earlier than anticipated. We continue to believe that the bulls are not out of the woods yet. Yes, the markets correcting substantially will lead to creation of pockets that can deliver outperformance in time to come. Nonetheless, it may be premature to buy into such pockets as yet. Remain cautious as of now as the sentiment has once again entered unknown territory. The new unknown may not negatively impact the market moods as it did at the beginning of 2020.
On the positive side, the market that was relentlessly holding on to its levels at the top is now providing some rational levels where investors can start negotiating for bargains. Cash, my dear readers, will be worth in gold in the coming weeks as the equity market starts to get attractive again. In our cover story on contrarian investing, we have spelt out in no unambiguous manner the qualities one must possess to beat the markets and to be a successful contrarian investor. It is in times like today that spell high volatility when the qualities of a contrarian investor will ensure that you not only stay focused on your original investment philosophy but also make handsome money.
In our special stories we have highlighted the additional efforts one must make to take exposure in micro-cap companies. Micro-cap investing can lead your path to discover multibaggers. The kind of returns one can gain by micro-cap investing is mindboggling; however, the path towards micro-cap investing is not convenient and traditional investment parameters may not apply most of the times. The current issue also carries an in-depth report on the plastic industry and covers the various opportunities the plastic industry stands to offer from an investor’s perspective. The bright outlook may excite some of our long-term investor readers. Looking at the market condition which is in a corrective mood, it is important that you stay away from the popular stocks that are over-owned.
It is easy to be clingy in times like now where our recent memory of select popular stocks’ outperformance does not allow us to get rid of them even when the so-called stocks are showing weakness. It is time to be unemotional and it is time to protect gains and have some cash to buy when the risk-reward ratio is utterly in favour of the investors. Trading by headlines regarding the new variant of the virus in the past few days shows the lack of confidence on the part of the bulls and it is likely that bears will have an upper hand in the coming weeks. However, this does not mean one should short in the market. Churn your portfolio and stick with high-quality defensive names for the moment. Pharmaceutical and IT stocks can provide the alpha. A slow and staggered investment approach spread across the next 4-6 weeks can be a strategy to consider.
RAJESH V PADODE
Managing Director & Editor