Correction : A good opportunity to buy

Drawbacks of having stock markets which are globally linked were once again felt over the last couple of weeks. While domestic economic and corporate indicators have been largely positive, markets have lost nearly twelve percent from the peak in about two weeks on the back of weak global cues and heavy FII selling. While one can argue that Indian Economy is largely dependent on domestic consumption and infrastructure and is going to be only marginally affected by resurgence of financial instability in some Western Economies, yet in the short run it is liquidity and sentiment which drive the markets. Liquidity inflow from FIIs, which forms a fairly significant part of the overall money supporting our markets, has reversed with risk aversion resurfacing in the global arena. This can potentially pull down the markets further in the short run. However in the long run markets are driven by fundamentals which remain very robust as far as our markets are concerned. Hence this short term negativity is giving long term investors who had missed the rally a great opportunity to enter.

Our markets haven’t had a significant correction since last March and had more than doubled in about nine months. Markets were getting overheaated and valuations had become stretched. This latest global financial scare has given the necessary trigger for the much awaited correction in our markets. Positive outcome of this sell off is that stocks are now available at attractive valuations one more. Correction has reduced the downward risk of fresh investments considerably. We recommend investors to buy in a staggered way taking advantage of all weak days to accumulate quality stocks. Automobiles, banking, capital goods, infrastructure and IT sectors should be preferred.