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How investors can ride the bear

Experts advise those with a weak heart to stay away from trading for the time being as the markets are likely to remain range-round with a negative bias, reports Sanjeev Sinha.

business Updated: Mar 24, 2008 23:48 IST
Sanjeev Sinha

A bout of negative news flows over the last few weeks has led to high volatility in the Indian stock markets. So much so that the Sensex has already fallen by around 30 per cent from the all-time peak of 21206 on January 10, and experts believe the markets might shed more weight in the near term owing to weak international cues, absence of retail participation and concerns of slowing down of corporate growth momentum.

Now the question is: what should investors do in such a situation? Should they remain invested for some more time or long, or make a quick exit to avoid further losses?

Although nothing can be said with certainty, experts advise those with a weak heart to stay away from trading for the time being as the markets are likely to remain range-round with a negative bias for some time. “Unless you have strong conviction in the stocks which you hold, money making will become extremely difficult,” says Ashish Kapur, CEO, Invest Shoppe.

And those who are not risk-averse may do well by remaining invested and using the current downturn to add more stocks to their inventory in a systematic, disciplined way. “Market volatility is likely to increase due to low volumes and buying in a staggered way may prove to be more beneficial,” says Kapur, adding, “it is, however, important to research stocks before buying them.”

It is time for a re-look at the portfolios, and reshuffle them to give more preference to companies that enjoy leadership position in various growth industries and segments. “If there is a higher exposure to mid-cap and small-cap, then the portfolios should be shifted to large cap as large cap is the asset class which will move up first when the markets revive. Also, if the exposure to equities are low, it is time to enter equity particularly through diversified equity funds,” advises Rajiv Deep Bajaj, MD, Bajaj Capital. Experts also advise investors to limit exposure to equities and follow a proper asset allocation methodology.

There are also some sectors that still seem to be promising. Banking stocks, for instance, have taken a lot of beating in this fall due to sub-prime fears and the likely slowdown of economic growth. Many well-managed PSU and private banks, therefore, are available at attractive valuations and this is one sector where the weightage of portfolios can be increased.

However, while “banking is the backbone of any economy if the latter has to sustain high growth rates, auto, FMCG and telecom are the best bet to capitalise on the domestic consumption boom,” says Dinesh Thakkar, CMD, Angel Broking.

Bajaj adds, As the personal taxation has come down, people will get more disposable income. The expected consumption growth will favour FMCG, consumer durables and auto.

Also, IT, pharma and FMCG are some defensive sectors that do not get affected by an economic slowdown. “Stocks in these sectors have limited downside and are good for conservative investors,” says Kapur.

All said and done, however, a majority of experts still remain bullish on stocks.