Be ready for some more correction, time not ripe for bottom-fishing: Kunj Bansal

What is the right strategy? Many are tempted to buy this fall thinking that it could very well be a repeat of what we saw in March 2020. Would you say it would be a little bit foolish to catch a falling knife?
Yes, these are very simple questions and unfortunately the answers are not as simple. The market always does not necessarily repeat in exactly the same percentage, same timing and same pattern, as it did in the past. Of course, the basis of technical analysis is that the market trends get repeated but as I said, the timing and the quantum pose a challenge. I do not think it makes sense for us to say that it is like March 2020 kind of repetition will happen.

As we all know, what is happening in the current market and which happens quite a lot of times is that it has become a), news flow driven; and b), liquidity driven, the inflows or outflows driven. But more importantly, it has become news flow driven. We have seen that the result season is over and so there is no significant news coming in from there, crude on the other hand is continuing to rise and is showing signs of very easily crossing $100 and that is obviously negative.

Then we have the whole liquidity issue, wherein FIIs are continuing to sell though till some time back, we saw a counter balance in terms of domestic investors but it is quite likely that if the uncomfortable market continues for quite some time, then even domestic investors will pull their hands out. In terms of investment strategy, at the risk of having lost some opportunity, short-term traders should certainly be highly cautious, go very highly strictly loss oriented. I would not advise even the medium investors who want to bottom fishing at that point of time.

In my view, the market is more news flow driven and so while in today’s market, in intraday we have seen the largecap index recovering, that recovery is not visible in the midcaps and smallcaps and certainly not in the individual stocks and more so not in the stocks which retail investors have been holding in general.

That is why I am saying that it does not look like a comfortable point has been reached for bottom fishing. I can always go wrong but I would wait and I would not mind if I have to buy a little bit higher also. But I would wait for some time before trying to take a plunge.

The other question is what is it that you buy because it has pretty much started off with IT in an across-the-board fall?
In the current market, the fall has been across-the-board and that is how a correction should be. So while largecap indices are still not reflecting the quantum of correction, the Nifty is hardly down 10% from its October peak in the last four months. But there has been a severe correction in the mid and smallcaps and more so in individual stocks.

Coming to what I should buy, if I leave the short term market movement view, the underperformance, outperformance aside, if I take a view of about a year or so, two, three sectors will clearly stand out going forward. Manufacturing, capital goods, infrastructure will come back, given the way the results were showing the significantly increased top line of these companies because of the order inflows and economic recovery over the last one year because of the significant government investment in capital and infrastructure space.

Of course, the bottom lines were affected by the rising raw material prices and as a result margin was affected but that is where the manufacturing capital goods space will see an outperformance that will extend to cement as well. That is where we will see an outperformance coming in. Further, we will see interest coming back in the IT sector as well.

We have seen a good amount of corrections which is very healthy. We might see some more corrections. In the short term, we should be ready for some more correction, but given the way the growth rates are likely to pick up, the commentaries that companies gave, the whole focus on digitalisation that continues world over and more specifically in India, we will continue to see high growth coming in. These are the few sectors that over a medium term will start turning out performance.