The market had a roller-coaster ride in the last three months. The Nifty ascended to a record high of 11,760 points on August 28, but by the end of last month, on October 26, the index had come down to 10,004 points. That was a 14 per cent correction, indicating a bear phase.

When equities get on a downward spiral, the market will be noisy with justifications for the fall. Brokerages and analysts will come out with fascinating theories about why the market has fallen and why it will go down further. Oil, rupee, liquidity, trade wars, we heard it all. This happens in a bull phase also. Then it will be bullish justifications. India is the  fastest growing market for consumer goods, the brightest spot among emerging markets, investment cycle is picking up, earnings are on track to surprise positively and so on (Hey! We haven’t heard all these for a while!).

The point is, just like there are bear and bull phases, there is also a justification phase. That is when things go against Street expectations. And that phase is actually a  signal for a savvy investor to become a contrarian.

A contrarian leaves the herd and take a diagonally opposite view of the market. But being a contrarian is easier said than done; it requires tonnes of courage for one to move against market sentiment and swim against the news flow.

Last year, around the same time, selling a mid-cap stock seemed nothing short of a sin. But anyone who had the gumption to sell then must be a happy man now, as most stocks now trade far below their price then.

Similarly, buying a stock would appear a stupid decision today. With more headwinds getting added to the market’s way and the market bottom looking as deceptive as ever, few dare to invest their hard earned money into a stock at this point, though fund managers can afford to do so with the long-term money at their disposal.

But the courage to take a contrarian call can be mustered, if one looks at one’s own portfolio record and ask a few questions.

First, how many times had I bought stocks at rock bottom prices and how many times had those stocks fell further? And how many times stocks were sold but their prices went up after that?

Chances are, one will spot quite a few mistakes and a couple of right decisions. That is natural, as even the best of investors cannot get the market direction right all the time.

So, one has to accept that there is a margin of error in stock decision, be it selling or buying. Despite that, if the right company is picked up, an investor is unlikely to book a loss on it. Especially, companies which have negotiated down cycles safely and handled debt with utmost caution.

The second question is, had the world ever been free of geopolitical tensions or financial fault lines? Every year had one or the other issue troubling and yo-yoing the markets. From big crashes like the Asian financial crisis of 1997, dot com bubble of 2000, financial meltdown of 2008 to pestering issues like the taper tantrums, Brexit to now trade wars, there had never been a year of clam for the markets.

The world had never been and never will be free of problems, but the fact is that an investment made when things are looking bad gives the best return to an equity investor. So, if the valuations are right, forget the global problems and make an investment decision. After all, the world will find a solution for all its problems.

Remember that the stock market tends to be freaky. See what happened last week. Without any global cues, all of a sudden, the market made a strong upward move on Monday, with the Nifty gaining 220 points without any provocation! In fact, no reasons could be attributed to the gyrating market moves of the last two months or more.

At this point, when headlines are talking about headwinds, some of the lead indicators show that things might be turning for the better on the ground. Most companies in the capital good sectors have shown relatively better numbers. Company guidance are also more positive than before. Capital goods have also shown growth, which indicates more money is going into capacity building in anticipation of greater future demand. PSU banks have started showing a decline in bad loans. All this means, things are looking up for many of the troubled sectors.

Even if one gathers the strength to be a contrarian in this market, which will remain volatile until the state elections outcome is known, there is no need to make the investment in one go. If one expects further decline in stocks, and still wants to time the market, stagger the investment. Opportunities could prop up again, going forward, for less or more.

A market bottom is understood only long after it had been formed. None can predict that a bottom will get formed at a certain level or week or month. Whoever tried to forecast the bottom had failed miserably. The best option is not to get into the business of guessing. Be bold and just do it. Buy a good business when nobody wants to buy it.

rajivnagpal@mydigitalfc.com