Given the recent correction, one should plan to invest in resilient businesses with predictable earnings and massive perceived earnings growth. Stocks like Kotak Mahindra Bank, TCS, Dabur, Bajaj Finance, Titan and HUL can possibly turn out as wealth creators for the next decade, Umesh Mehta, Head of Research, Samco Securities., said in an interview with Moneycontrol’s Kshitij Anand.
Q) Lower circuit on Friday and then some recovery on bourses. What is the way ahead for markets in the near term?
A) The one rule for investors in panic is BUY. The market-wide lower freeze is the loudest signal Mr Market is giving with fear at its peak. No one is buying and therefore it is the signal of the decade to buy.
Q) Sensex and Nifty are officially in the bear market along with global peers. Historical data suggests that Nifty witnessed a fall of 25-28 percent before bouncing back. Do you think this time as well, the downside is fairly limited from here?
We think such panic bottoms are a great opportunity to buy quality stocks. The near term bounces will keep on happening, but eventually, volatility will subside and markets will give opportunities to “accumulate”. For investors, this is a buy on dips opportunity.
A) Currently, markets are largely driven by fear of survival. The fear should now subside as we think it peaked on Friday morning.
This is a textbook type ideal situation to go contra and start accumulating businesses as these kinds of falls let you acquire a slice of India’s future at a marked-down price.
Q) What does your experience of bear markets tell you? Investors who put in money around the time when the market hit lower circuit say 2008, they have created massive wealth over a period of time. Do you think we are in a similar situation?
As such, there is no 20 percent definition and it can vary from cases to cases. However, the real crux is to identify the peak in fear psychology, which most likely the market registered early on Friday morning.
A) Ideally, the best time to invest is when fear grips the market. The downfall is purely sentimental rather than being backed by deteriorating fundamental business prospects.
2008 and 2020 are dramatically different events with the same outcome; catastrophic market declines due to the looming fears of survival.
Q) What are you advising your clients – sit tight or but in a staggered way?
Such situations for whatever reasons are always great opportunities for investors to accumulate quality stocks.
A) Such times of extreme pessimism carry along with them an ideal opportunity to go contra and start accumulating quality businesses where businesses are resilient and supported by steady cash generations.
Q) The good news is that MF are still receiving inflows which means that investors still trust equities despite massive sell-off. Do you think the trend will continue or you see redemption pressure in MF sooner or later?
For conservative investors, it would be advisable to start deploying savings to start investing in compounders in a SIP (staggered) mode.
A) Given the fact that mutual funds inflows are still intact despite the massive selloff, speaks much about the maturity of investors and investor awareness campaigns that the association is running.
Q) Where is value in this market? Most of the stocks are available at multi-year lows – how should investors decide which one is a better value play?
It all depends on how the health concerns are addressed by the government. China is slowly turning to normalcy. Hopefully, India too will be able to manage the crises well. Equities will still remain the mainstay for investors and confidence will return soon.
A) In times of extreme pessimism, every market constituent, in general, will look for a value play. But, it is sound enough to categorically disperse genuine value bargains from value traps.
Empirical evidence suggests that buying compounders in such panics rewards the investors handsomely and buying cyclical will give massive alphas to traders in the medium term.
Q) Any five stocks which you like to recommend to your readers and why?
Buying leaders in FMCG, Pvt banks, Consumer durables and IT will be the best strategy for investors.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
A) Given the recent correction, one should plan to invest in resilient businesses with predictable earnings and massive perceived earnings growth. Stocks like Kotak Mahindra Bank, TCS, Dabur, Bajaj Finance, Titan and HUL can possibly turn out as wealth creators for the next decade.
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