Why the best buy ever is a distressed panic sale?

Investing is more about Psychology other than Science, Maths and History. Empirical data and real-time action on data help any investor to make fruitful or worthless investments. The recent market fall across the globe has made some investors jittery while others are buying value amidst the fall.

Bond yields have risen on account of inflation fears and US Fed commentary last week have also mentioned inflation to remain persistent rather than transient and further rate hikes are expected sooner and faster. But the unemployment rate is reducing at a faster rate with economies opening up and activities rebounding thus posing a strong overall growth, which has called for a rate hike.

Wealth Vault views any such fall in markets to be seen as transient rather than persistent and should be considered as an opportunity to buy on dips for the following reasons:

1. We have seen that Debt/Equity ratios for Indian companies have reduced substantially. Big corporates have reduced their debts and thus increase in bond yields would have a weaker negative impact on the stock prices.
2. Cash flows and corporate earnings will remain strong with lower Omicron cases and growing economic activities. Share prices are slaves of corporate earnings and if the earnings are intact, any event of correction will be seen as an opportunity to buy a fair valued basket of equity-related products.
3. As we evaluate businesses using the DCF method, cash flow as the numerator and expected returns (herein as rising bond yields) as the denominator. Till the time, we have corporates with strong cash flows, the stock prices would be resilient in any correction.
4. IMF raised India’s growth forecast to 9% for FY23. Global growth is seen lower at 4.4% this year. That means India would continue to be the best investment destination for FIIs.
5. Government is going for divestment through IPOs like LIC and stake sales in other PSEs. Maintaining a fiscal deficit for the government will not be an issue in such a scenario.
6. SIP book of Rs 11,000 crore coming to equities from government schemes viz NPS, EPF would ensure markets are upbeat.
7. From our talks with various fund houses and a few large broking counters, we have been informed that FII selling is majorly seen on the ETF front and not in individual stocks. So, money in select counters is here to stay for the long term.
8. To date, NIFTY PSU Bank is up by 14.46%, Bank Nifty is up by 6.4% apart from Nifty Energy which gained 8.8% while the correction is majorly in IT sectoral indices which fell by 13-14%.

Fear in the market:

1. War between NATO forces led by US and Russia over Ukraine could see crude oil prices soaring.
2. Elections in India could lead to doling out relief packages to voters at large and increase in taxes to substantiate the relief. This could be through an increase in LTCG and STCG.
3. Government bonds maturity of Rs 4.50 lakh crore is expected in FY23. The government would need funds to repay the maturity amount and that could impact bonds and thus the equity market negatively.

So, correction in market gives better entry points and we’ve to plan exit basis our funds' requirement and not panic. I know a few friends who made an exit based upon events. Out of 10 times, they were able to execute and make a profit amidst falling markets and thus exited right for 2-3 times but failed 7-8 times thus losing as an investor. So, buying on a dip in sectors with sustainable growth is the key. Macro events shouldn’t deter an investor to invest but always help make good entry points for long term investments. Portfolio changes can be done with a very cautious approach if one has the understanding of the market cycles from one set of equity to another set of equity or one may choose portfolio rebalancing with a prudent financial coach. But the key to sustainable returns is to stay invested in the asset classes with asset allocation as per the requirement.

Views are personal: The author Ramesh Mago, is the Director at Wealth Vault, Chandigarh

Disclaimer: The views expressed are of the author and are personal.TAMPL may or may not subscribe to the same.The views expressed in this article / video are in no way trying to predict the markets or to time them.The views expressed are for information purpose only and do not construe to be any investment, legal or taxation advice. Any action taken by you on the basis of the information contained herein is your responsibility alone and Tata Asset Management Pvt. Ltd. will not be liable in any manner for the consequences of such action taken by you.

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