Buying on Dips or Sell on High Price Work?

In recent times, equity investors are found to be in a whirlwind of emotions due to psychologically challenging times and negative development. This is not affecting just the inner peace of investors but also their investing journey approach. During lockdown, investors’ sentiments have drastically changed from confused to the mood of denial and despair.

The primary reason behind this change of sentiment is related to ongoing rare events such as Health Scares due to COVID, loss of jobs, cut in salaries, financial sector fragility, and economic crash because of the imposition lockdown, poor relations with neighbor countries.

These all just happened within the last four months of 2020. This has impacted the common investor psyche to believe that market condition is as bad as other things.

The Most Attractive Opportunity for Investments?

Indian equity market and debt market valuations have become more attractive recently. There is a fall of about 50 per cent in India’s market capitalisation to GDP. The 12-month price to earnings ratio also declined below 14.5 times. Other market zones were also approached, which had witnessed some handsome gains in the past for valuation measurement – Which suggests buying equities and increasing allocation in a faltering manner.

The analysts recorded that economic activities are getting back on track in their high-frequency data tracker, but in India, it is recovering at a faster rate. Meaning the period might be shorter taken by the economy to return to its normalcy level than previously expected.

What are the Factors Strengthen the Investment in the Indian Market?

The global stimulus package that is both monetary and fiscal support is also helping in strengthening this trend. For instance, the stimulus package provided to the U.S was around 20 per cent of its GDP, considered as the highest fiscal stimulus since World War II. Whereas in India, the heavy lifting is only done by monetary policy. Fiscal expenditure status remains muted. This could be another partial explanation of India’s Non-Performance. Despite that, reopening is the biggest stimulus required by the economy.

The trend mentioned above clearly indicates that investors should continue allocating incremental capital to stocks. This uncertainty is going to co-exist until this unprecedented situation unfolds. Investors are required to differentiate between forward-looking financial markets and the events revealed today. Many events might not have long-term impacts on the business earning and hence on their intrinsic values.

That’s why our recent slang is “Buy on Dips” and “Not Sell on Rising“. Fortunate Trading!

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