Common Mistakes Retail Investors Make In A Market Correction
Indian stock markets have fallen sharply this year though the performance is better than global markets. But many investors make the mistake of holding on the low-quality stocks hoping they will rebound when markets recover. Some investors who want to buy on the dips also make the mistake of accumulating low quality stocks that have fallen sharply in the market correction.
Market experts say that investors should use the correction to get rid of low quality stocks in their portfolio and accumulate good quality stocks.
“Indian market has shown a lot of resilience compared to its global peers. Nevertheless, we believe that investors must stay away from companies that lack any fundamentals, penny stocks, and overvalued/news-based stocks. Investors having exposure to the aforementioned stocks must exit regardless of their profits/loss and invest in quality companies that have good growth prospects, competitive advantages, and reasonable valuations,” said Parth Nyati, founder, Tradingo.
India’s benchmark Nifty has fallen nearly 7% so far this year and around 14%, a level the index was not expected to reclaim anytime soon.
That performance is still better than that of the MSCI all-country world index , which is down more than 16% for the year. And a Reuters poll of 30 equity strategists, which was conducted May 13-24, forecast the BSE Sensex to recoup less than half of its recent losses and gain only 3.2% to 56,000 by the end of 2022.
For investors looking to buy on dips, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said: “Market trend continues to be uncertain and, therefore, what investors can do now is to buy high quality stocks for medium to long-term. Financials, particularly leading banks, are good buys for the medium to long-term.”
For the Indian economy, says Vijayakumar, “elevated crude prices will continue to be a major headwind and sustained FPI selling, which can be expected to continue, will be a major hurdle for the market to rally.”
However, “there are indications of market stabilising and consolidating around current levels. In the mother market, US, there is a strong view that the fears of recession are overdone. The S&P 500 bouncing back from the 19% correction from the peak is, perhaps, a message from the market that the steep correction is over.” (With Agency Inputs)