The equity markets, fixed income , gold , silver, which comprises a major portion of the asset class to invest is under tremendous selling pressure.
Does this present a opportunity for investors ?
Yes, but with caution.
The below nifty chart shows the brutal sell off after the corona virus episode, we are not yet sure how long the markets will be in a bearish phase, but I see there is a limited downside from here.
YTD fall has been around approximately 35% for nifty index. The nifty 50 stocks too have not been spared and extending a long selling streak. Most of the companies with expensive valuations is now available at lower multiples.
Buying based on p/e multiple alone would be a grave mistake. As Investors we need to revise the growth estimates for the impact and ensure to invest in companies with good cash flow generating ability also companies which has bandwidth to withstand such “Black swan” events.
Ex : Itc , Castrol.
Investors who have eye for bargain hunting too have an attractive opportunity. Most PSU’s are selling at a fraction of their asset values and reproduction costs.
Ex : Sail, Nalco.
Investors looking for Statistical bargains too have a good playing field. Every strategy works when markets are throwing opportunities in a broad manner. It’s the patience, cash and courage to milk them we need.
Ex : BSE ltd , Amarjothi Spinners , travel sector ( selectively)
The key to making use of such a panic situation would be :
1. Opportunity cost – The best company to invest is the one you have already invested, based on opportunity cost if the company is available within a good margin of safety that will be best bet.
2. It’s best time to rejig your portfolios, replace good ones with non performers.
3.When markets are expensive always have cash holdings “Cash is king” at times of such panic.
4.After you buy the price may fall by another couple of % which is of little importance for a long term investor.
5.Buy when others are in panic and sell when others are greedy . It’s time to buy – ACT !
5. It’s such a time to build a robust portfolio of companies for the long term and reassess your portfolio.
6. Be a realist and an optimist in such situations. Don’t be blindfolded by false information.
I have been buying in this fall. I have advised clients to add to existing companies and also strictly hold cash, this fall may last for a few weeks or months. I believe once the tide turns investors will be rewarded handsomely who have patience to hold and sit tight.
I’m a Sebi-registered analyst. Not recommending the above discussed companies, this is for educational purpose only.