Keep Sailing in the Sea of Volatility
The market is trading within a broad range and neither giving a clear advantage to the bulls nor the bears. The volatility has increased considerably, thereby not allowing investors to have a clear view on the future direction of the market and this phase of the market is always tough to navigate through for most investors.Right now, the global market moods, geopolitical situation concerning Russia and Ukraine, earnings season and budget contours are the most important factors affecting the market moods. There is no doubt that the valuations are high and India is one of the most expensive markets amongst the large markets globally.
Hence, high valuation is dampening the global investors’ confidence. The good thing is that amidst all the concerns affecting the market sentiments, liquidity continues to remain high. With several companies declaring positive earnings, the animal spirits remain intact and we can see steady buying at every dip, so far. A major event in the form of annual budget is behind us and now it is time to identify the sectors to bank on that stand to benefit from the budgetary capital allocations and decisions. To understand precisely which sectors may do well in 2022 and beyond based on the budget announcements, our cover story connects the dots for investors.
The story highlights investment ideas that you would do well to take inspiration from. Meanwhile, the year 2022 is indicating that it will be a volatile ride and even though the market structure is bullish the rally may not be secular. The advance decline ratio has been weak in most of the trading sessions in February, indicating some pain in the broader markets. In 2022 so far, the BSE Sensex is down by more than 2.3 per cent already while the BSE Mid-Cap index is down by ~3.62 per cent. Global trouble may remain for a large part of this year with central banks across the world attempting to walk the tightrope while managing to keep the growth momentum intact and contain inflation risks.
Looking at the rally in metal stocks one can only confirm that inflation is here to stay. The rise in metal prices while being good for metal stocks does not augur well in terms of inflation risks. Tread cautiously on metal names as metal stocks are high beta stocks. Only quality metal stocks Tread cautiously on metal names as metal stocks are high beta stocks. Only quality metal stocks should constitute your portfolio. Preference can be given to the large-caps when it comes to the metal sector. IT sector stocks have been beaten down nicely since the beginning of the year. In fact, the bouquet of large-cap IT stocks is down by up to 23 per cent on YTD basis alone, thus presenting investing opportunities. The recent volatility has pushed several quality stocks in the ‘buy’ zone and we can expect a good bounce-back in some of the leading and top-notch names that are indicating oversold position.
In our magazine we have been discussing the merits of identifying megatrends and then zeroing in on companies that are expected to declare outstanding results. It is important that investors catch the megatrend early and then focus their energies on identifying companies where earnings’ explosion can happen. I must emphasize that investors need to stay away from stocks that move in circuits i.e. either upper or lower circuits. Risk management becomes impossible if several portfolio stocks move from circuit to circuit. There will be plenty of buying opportunities in the coming period. We keep coming up with such stock ideas in our magazine. Research will matter more in 2022 as the market rally is expected to get narrow. Stay tuned as we bring forth some of the most exciting investing ideas of 2022 for you!
RAJESH V PADODE
Managing Director & Editor