A Mountain Dew Moment for investors – Darr Ke Aage

Jeet?
marketsmojo.com/blog/investmentletters/a-mountain-dew-moment-for-investors-darr-ke-aage-jeet-1329.html

The stock market is testing the patience of the investors. Every rise in the market is
proving to be a temporary one.

Sunil Damania
December 07, 7:43: PM IST

The stock market is testing the patience of the investors. Every rise in the market is
proving to be a temporary one. Market moves up 3-4 days in a row, giving some hope
that the worst is behind us. But some events, whether global or local, intervene and
pull down the indices.

Right now, the market sentiment is the casualty. Investors are confused about how to
navigate this market, despite the YTD Sensex being in the green zone. The wealth
destruction is reflected from the fact that out of the BSE 500 companies, as many as
394 companies are quoting below their 2017 levels. Even though Sensex is at 35500,
my guess is that the sentiment belongs to the 28000 level. There is a pervasive feeling
of gloom and doom.

So what should one do in a situation like this? My advice would be: don’t panic. Don’t
sell quality stocks that have the potential to generate wealth for you. This phase in the
market in transient. I have explained why it is transient a little later.

In these times, I would recommend a few things for you:

1. If a look at your portfolio depresses you, avoid looking at your portfolio on a

daily basis. Staring at your portfolio is not going to increase its value, but it may
increase your BP!
2. Never lose confidence in the equity market. If you are a long term investor, then
your attitude should be like that of a long term investor. Long term investors are
not bothered by short term market movements. Long term investment is like a
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 five-day cricket match, where few maiden overs do not matter, unlike in a T20
match.
3. Don’t buy companies that have fallen due to some stink on corporate
governance. These companies are unlikely to rise even if the market improves
tomorrow. These would be laggards. Frankly we also never know how many
more issues are lurking beneath the surface in these companies. Don’t try to
catch falling knives.
4. Time to review your portfolio and identify companies whose valuations you
believe are quoting above their fundamentals. May be it is time to book losses
and use the proceeds to buy good quality companies. This will improve your
returns from the portfolio. Look at our mojo stocks. They will guide you for
picking good quality companies at reasonable valuations.
5. This is a good time to buy equity. After all, the basic principle of equity is to buy
low and sell high. But invariably we end up doing the opposite. Buy in a
staggering manner as this market is not going to move up in a hurry.

Why this phase is transient?

Every few years we have seen sharp downward movement. But the beauty about the
Indian market is that it bounces back smartly with a new all-time high. Another
comforting factor this time is that the Sensex did not move up substantially in a very
short time, which was the case in 1992, 2000 or 2008. This time around, the gain in
Sensex has been moderate. Also, the rise was not quick. That means the fall would not
be as steep as we saw in 1992 or 2000 or 2008. Hence, I don’t expect a major fall in the
Sensex from this level.

But I do agree that the valuation of the Indian stock market is above the historical level,
but the key is that India Inc must improve its earnings growth cycle. While the rise in
crude oil prices along with other input costs did impact margins, the situation now
suggests that crude may not run up much from this level. The latest OPEC meeting
could not reach a consensus on the production cut, which augurs well for the country.
If the world economy slows down, there is little reason for crude oil to move up. The
benefit of lower crude oil prices is reflecting on the value of rupee, which has shown
some strength in the last few weeks. On the domestic front, the state election results
continue to make market nervous, but election results normally have an impact for a
day and hence don’t give too much importance to them. The latest RBI policy did give
some indication that a cut in the interest rate is not off the table. So, some of the
factors that were bothering the market have now started looking less worrisome. Even
the FPIs who have been aggressive sellers in the market in September and October
have turned positive in November. But to be frank, I don’t see the market running up
too much and too fast. We may have pain points for at least next 3-4 months. We
should ride out this bad phase. Time to act with a smart strategy, rather than
panicking. Darr ke aage jeet hai!

The views and opinions expressed in this article are those of the author and do not
necessarily reflect the official VIEW or position of www.marketsmojo.com

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Sunil Damania

Chief Investment Officer - Marketsmojo.com

A chartered accountant, has 25 years of rich experience tracking Indian

as well global stock markets. He has a strong command over financial
analysis and an in-depth understanding of the stock market. He has been a speaker at
various events such as Funds world India, Tradetech India, Assocham to name a few.
His excellent application of common sense helps him find true gems in the equity
market to create alpha.

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