Investor opportunity on market decline. Reason to sell at current time unless you are heavily overweight on momentum stocks

Investor opportunity in a market decline: Sell now unless you are much overweight to momentum stocks What caused Friday’s markets to drop much more quickly?

Our fall now is a confluence of many things. Valuations have been high and some earnings disappointment has been the main reason for foreign investors to exit Indian markets. But they did so for a variety of other reasons.

People are making commitments to the United States as a result of President Donald Trump’s America First ideology and urgings for overseas investment. Trump has also said that there would be tax cuts which would increase profits after taxes (PAT) which is attracting more people to invest in the US.

Investor opportunity on market decline: Sell now unless you are heavily overweight on momentum stocks From a currency standpoint, the trend has been further reinforced by the USD’s strength vs. emerging market currencies as capital flows shift to the US dollar.

Also, investors think they might want to buy US bonds because US high-yield bonds are returning as much as Indian equity. And capital is flowing to the US as a result of all of this.

Also, India has outperformed developed markets in recent years, but emerging markets as a group have underperformed, and money is flowing out of all emergent markets, including India.

Investor opportunity in a market decline: Sell now except if you are really overweight momentum stocks. Will there be more market declines?

Often markets are pushed up by flows—not by fundamentals. They exceed fair value when they rise and fall short when they fall.

The fall in the last five to six months has brought the Nifty below its historical average. Even small- and mid-cap stocks are nearing the average, though they remain above it.

The FPIs will keep the markets going down as long as they are selling. When the selling stops, they'll stop.

Investor opportunity in a market decline: Sell now unless you are extremely overweight on momentum stocks As mentioned earlier, since there are buyers in the market, it is important to note that FPIs are sellers. Besides the ongoing retail inflow, domestic institutional investors (DIIs) have been buying.

Are investors still making investments?

As a class of investors, HNIs are the most worried, but the small-investor front is more stable as retail investors are doing regular investments.

What are investors supposed to do now?

Investors have to decide whether they want to buy when FPIs sell or whether they want to join FPIs and sell their holdings.

Sector expected returns have gone up since the valuation correction. There is no reason to sell unless you have a lot of momentum stock in your portfolio.

Investors’ opportunity in a falling market: No reason to sell now unless you are heavily overweight on momentum stocks Investors should think about buying in stages as there may be further corrections post-FPI sell-off. India has one of the highest returns on equity in the world. Our fundamentals are good. Prices will move once the FPIs stop selling.

Where should they put their money?

Even though the market is slightly undervalued, it is not inexpensive. So, they should buy slowly.

Focus on quality stocks or large-cap mutual fund schemes rather than on momentum stocks, small-cap or mid-cap schemes. Even mutual funds have been buying good quality stocks at competitive prices.