1,420 stocks in tight bear hug! A cult movie gives money-spinning mantra

As much as 1,421 stocks on NSE have lost more than 20 per cent from their 52-week highs.

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Most stocks are looking attractive from a valuation perspective.
Nearly 85 per cent of stocks listed on the National Stock Exchange (NSE) are in bear market, thanks to the prolonged tussle between the bulls and bears.

To handle this, you need to turn to yesteryear’s Bollywood villain Gabbar Singh, who doled out a fair piece of advice in a different context in the movie Sholay, but that is exactly what might work for you in this market: jo dar gaya samjho mar gaya (If one is afraid, consider him dead). So say some market veterans.

Textbook definition of a bear market calls it a condition in which the price of a security plunges 20 per cent or more from its recent high point.

Stocks like Dewan Housing Finance (DHFL), Reliance Communications, Cox & Kings, IL&FS Transportation and Jet Airways have lost as much as 98 per cent from their 52-week high levels due to corporate governance issues, while others like Maruti Suzuki, Britannia, MRF and Sobha have become victims of the ongoing slowdown amid a slowdown in the economy and sectoral headwinds.

Sunil Singhania, Founder, Abakkus Asset Manager, says it is the time to take risk. “Unless you do that, how are you going to make money? There is a little bit of hazy outlook in terms of near-term earnings, but prices are discounting more than that as some stocks have fallen 50-60 per cent.

" J o dar gaya, samjho mar gaya,” Singhania cited a popular Bollywood dialogue to explain the tradeoff.

“A number of companies now trade below book value, below intrinsic value and below replacement cost, largely because the near-term outlook is slightly muted,” he said in an interaction with ETNOW.

Nifty Midcap 100 and Smallcap 100 indices are down 29 per cent and 21 per cent, respectively, from their respective 52-week high levels, while benchmark Nifty50 is down around 9 per cent from its high of 12,103.

“Since the election, we have had a much more pronounced slowdown than anyone anticipated. There is an issue in terms of how the global macro scenario plays out. There are instances like what is happening in Argentina. We have seen geopolitical issues across the world, like Hong Kong. I do not see any of these issues going away anytime soon. The volatility is clearly here to stay,” Prasun Gajri, Chief Investment Officer, HDFC Life, told ETMarkets.com in an interview.

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Most stocks are looking attractive from a valuation perspective. Over 600 companies from among the worst hit traded at a price-to-book value (P/BV) of less than 1 on August 19, and about the same number of stocks traded at price-to-earnings (P/E) ratios below industry averages, signalling below-par valuations.

However, analysts warn investors to steer clear of highly-leveraged companies.

“The best way to spot value picks from the beaten-down counters is to develop insights into the business, the management and its competition over a long period and then work backwards,” says , Kuntal Shah, Partner, Oaklane Capital Management LLP.

“In a classic valuation case, you assume a lot of things to arrive at present valuation. But in stock market, the current price is known to you. You can work in a reverse way to check what the embedded current market valuations are telling you about the growth of the business. If you have a variant perception, then you can act on it, and if your perception about the growth and pricing is different, you have an opportunity either to buy or sell and be proven right later,” he said.

The above task is not an easy one for the novice. They should seek advice from financial experts to try and create a diversified portfolio.

Value investor Vijay Kedia, who uses his popular ‘SMILE’ formula for stock picking calls for betting on a company that is small in size, medium in experience, large in aspiration and has extra-large potential.

While picking a stock, make sure that the product the company produces would stay in the market for 5-10 years, says he.

Some analysts are still preferring to stay with the defensives. “Since risk aversion is still there, trend reversals in sectors like IT and FMCG will happen first, if the government announces some measures to stimulate the economy. This will be followed by banking sector,” said Vinod Nair, Head of Research, Geojit Financial Services.




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