It was not in distant past when on August 29, 2018, the Sensex and Nifty hit all-time highs of 38,989 and 11,760, respectively. Since then, the Sensex lost 14% or 5,640 points and Nifty fell 14.71% or 1,730 points and investor wealth worth Rs 25.71 lakh crore was wiped out leading to huge losses in their portfolios.
As interest rates continued to remain low money extensively flowed into financial assets worldwide but with rising interest rates, the liquidity is getting squeezed. So, the FIIs have started selling at a higher pace. The macro situation is not really so bad as the markets project them to be, but the appetite for risky assets are on a decline. Markets want political stability and any instability will lead to a significant spike in market volatility. It is good news that market liquidity challenges are easing, bond yields have come down, crude is off the highs and the currency is stabilising. Earnings till date have been reasonable and valuations have corrected so there are quite a few positives that can attract long-term investors.
Even now there are so many spaces where valuations have become quite attractive. Retail investors should churn portfolio to accumulate high quality stocks. Such markets offer excellent entry points to buy high quality stocks which during good times appear very expensive with limited upside. This is a good market to accumulate quality stocks. And quality is now available at a reasonable price. Strategy should be to focus on quality and avoid traps of looking at cheap stocks which have corrected by 70-80% and appear multi-bagger because they can correct even more. The best strategy for investors in this market would be to churn out the bad companies and accumulate quality stocks. It is always difficult to figure the bottom of the market and gauge turning of sentiments.