Just because some companies have fallen by 70-90 percent, it does not make them attractive, Mehta said.
Defensive stocks have become expensive. It is, therefore, not a wise decision to allocate in such sectors now, and it looks like that smart money could be drifting towards taking calculated risks in beaten-down stocks, Umesh Mehta, Head of Research – SAMCO Securities, said in an interview with Moneycontrol’s Kshitij Anand.
Q) A volatile week for Indian markets as Nifty closed flat with a negative note. The index witnessed selling pressure after reclaiming 11,800 on June 20; can we call that a “Dead Cat Bounce”?
A) Yes, indeed. June 20’s rise was a “Dead-Cat” bounce since the up move was witnessed only in certain counters, especially the debt-laden companies with fragile fundamentals.
These stocks faced a knee-jerk reaction without any strong factors backing it. It was more of a speculative move.
Q) The big carnage was seen in the small & midcap space as more than 200-500 stocks hit a fresh 52-week low in the week gone by on the BSE. How should investors approach this space?
A) Mid and Smallcaps have historically been more volatile and, therefore, when such moves come, the brunt is borne by smallcap stocks.
There is nothing new when a large universe of stocks hit 52-week lows as such a behaviour has been witnessed many times in the past.
But, when the sentiments turn, they too will bounce back with a larger percentage move.
Q) Selling continues in companies with high debt, also the ones with high pledges shares, and NBFCs. Where are the pockets of opportunities or the sectors where the smart money is moving now?
A) In such volatile times, defensives are the darling of the markets. FMCG, Consumer Durables and Zero Debt companies are the preferred lot for investments.
But, due to a unanimous preference, defensives have become very expensive. So, it is not a wise decision to allocate in such sectors now. Smart Money could be drifting towards taking calculated risks in beaten down stocks.
Q) In the first six month of 2019, nearly 200 stocks fell 10-90 percent, which include names like Reliance Communications, Reliance Infra, Jet Airways, Manpasand Beverages, Jaiprakash Associates, Vodafone Idea to name a few. Are these stocks effective buy on a dip, or is it better for investors to book losses and put their money in growth companies?
A) Just because some companies have fallen by 70-90 percent, it does not make them attractive. There is no point investing or holding such losers.
It is better to sell and shift to quality stocks. Any stock falling beyond 75 percent from the top, historically, should be a no-no for investments.
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