Markets have broken the narrow range in which they were confined for the last couple of months by a decisive move in the negative direction. However encouraging corporate results and expectations of good disinvestment of public sector entities and favourable policy announcements in the forthcoming budget session are likely to bring back buoyancy in the markets soon. For investors it is a dilemma whether to use their liquidity to buy into stocks at this stage expecting a rebound soon or preserve cash and wait for a confirmation of an uptrend. Either way markets will remain volatile as they usually remain in the run up to the budget. If investors wait for the uptrend to get firmly entrenched they risk losing out on a significant part of the uptrend. On the other hand if they invest a sizeable portion of their investible surplus at this stage they risk erosion of their capital should the correction get deeper and sharper. A way out of this dilemma is to confine your investments strictly with the large cap and blue chip universe. A portfolio of frontline stocks provides downside protection to a large extent and can easily be hedged using Nifty Futures and Options. We are of the opinion that this crack in the indices will not last very long and should be used as a buying opportunity. Well established companies should be preferred till the sentiment and direction of the markets get better.
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