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Friday, December 16, 2011

When to Buy Stocks in current sinking stock market?

Indian stock markets are sinking slowly over the past one year. Did you notice it? Or you were too busy to notice it in euphoria about roller coaster rides of BSE and NSE in short term? Check this out and think when you should buy stocks in this sinking market.

If you look at the BSE SENSEX chart closely, you would see the direction in which Indian stock markets are travelling for past one year. As you can see in below chart, the direction was of course, southwards! BSE SENSEX has lost more than 20% in past one year.
BSE SENSEX has lost more than 20% steadily in last one year
Is that where the stock markets are going to stop sinking? Have stock markets bottomed out now and will start rising in 2012? Should you start buying stocks now as this could be the bottom? Which would be the stocks to buy in such market and looking at future? I am going to try to find out answers to these questions in next few days along with you and publish it here on Indian Stocks News.

Certainly, the stock markets should decline further from here. How much? We can only guess. I believe 5 – 10% more from here looking at slowing down Indian manufacturing, higher inflation, lower consumption, bad political scenario and policy makers, bleak global economy (due to deep European crisis) and still not recovered American economy. FII’s have pulled more than $1.6 billions from Indian stock markets and they would pull out more due to global economical scenarios.

But, one thought I wanted to share today is from Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family. His thought says "The time to buy is when there's blood in the streets." Also he appends “Even if the blood is your own!". This is “Contrarian” view of investing in stocks. The essence behind is, the worst the market conditions are, better are the opportunities available to contrarian investor. Investors just have to figure/find out those opportunities.

As you would have seen, mid cap stocks are almost out of flavor for investors now and everyone is concentrating on just large cap stocks on the vine of bad times. It is a right strategy from safety point of view for sure; but investors who want multi-baggers, might want to concentrate on those “better opportunities” out there, start accumulating when others are not optimistic and wait for long time to see the time change and their stocks becoming multi baggers. This will certainly take 3-5 years of time frame if you look at the current global and domestic scenario in India.

As an contrarian approach, what long term investors can do is to find out the companies who have stable growth, good balance sheet, low/no debt but out of flavor due to current stock market conditions. This is the correct time to do that and start accumulating those identified best stocks for long term investing. Don’t buy stocks in large quantities once identified but start buying in SIP manner (Systematic Investment Planning), small quantities at regular intervals over the time period.

Watch out for more posts here on IndianStocksNews.com for stocks to buy in 2012.

5 comments:

  1. Sounds like the advise that Warren Buffett - the guru of Value investing would give too - Be fearful when others are greedy, and be greedy when others are fearful :)
    So what is the current list of stocks with the above fundamentals that you would recommend.
    My take would be Infosys, SBI and Bharti airtel in large caps.
    Tough to find good midcaps, any suggestions there.
    Small caps are always risky in this situation ...

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  2. It would be advisable to buy beaten down sectors for a contrarian investor such as power,mining,infrastructure,banks;since the present policies cannot remain forever. ICICI Bank,Hindustan Zinc,Tata Power,Larsen and Toubro,Tata Steel are available at excellent valuations.

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  3. A large number of midcap shares are available at mouth watering prices. Make a list of companies with low PE ratio compared to its median PE ratio over last few yrs, Low PEG, CAGR growth of sales and net profit of at least 15%, Low debt to equity ratio(less than 1), high interest cover. There are a number of companies meeting these criteria. Long term investors may contact me.

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  4. really it very good.......

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