Hug the bear & make merry on the Street

Sensex &Nifty shedding over 20% this year, analysts say it is the best time for investors to pick their long- term bets

Last week, the market entered a prolonged bear phase, throwing up immense investment opportunities for equity investors. However, investors would need to tread with caution keeping the risks associated with bear markets in perspective.

Over 20 out of the 50 stocks in Nifty are trading at 52- week lows, many at their multi- year lows. Along with stock prices, the pulse of the investors too, has fallen.

The bellwether Bombay Stock Exchange ( BSE) index Sensex has shed about 20.31 per cent since the beginning of the year, from 20,509 points, to Monday's close of 16,341.70 points. It is even higher if one considers the 52- week peak of 21,206.7, down 23 per cent. The NSE Nifty plunged 22.71 per cent from its 52- week peak of 21,206.77.

Retail investors have already fled the market, after burning their fingers in the downturn.

" The major reason probably is the erosion of their capital because of leveraging beyond their means. Another reason is the confidence. And hence they generally refrain from making large, fresh commitments," said Paras Bothra, research head- equities of Ashika Stock Broking.

Usually this happens because of investing in one shot, instead of staggered and disciplined investing. " So, they have to invest in a systematic way," said Hiren Dhakan, associate fund manager of Bonanza Portfolio.

D. K. Aggarwal, chairman and managing director ( CMD), SMC Investments and Advisors, said, " A bear phase actually provides the best opportunity to get into equities since investors have less conviction about the prospects of the market and stocks trade at low multiples." " Currently, we are trading at around 13 times one- year forward earnings ( price- earnings multiple) which is lower than the historical long- term forward average of 15.5 times. So, retail investor should invest in quality stocks," Dharmesh Pancholi, senior manager- advisory ( equity), Sharekhan.

It should be understood that market correction is a temporary phenomenon and domestic fundamentals continue to remain robust. Punters are predicting an average return of about 50 per cent in the next two year.

Vaibhav Agrawal vice- president- research of Angel Broking, said, " Valuation- wise most of the blue- chips are already quite cheap. Also, one must remember that from the Lehman- lows ( collapse of Lehman Brothers in September 2008), most blue- chips gave 300- 400 per cent returns within a year." In a bear phase, short- term earning opportunities dry out keeping only long- term investment as an option.

Bothra said, " Hard earned spare capital should be invested in equities only if you are willing to hold for three years and willing to bear the pain of a downward drifting bear market where valuation remains extraordinarily cheap." Kishor Ostwal, CMD of CNI Research bets big on India's growth story and tiding over the present difficult times soon. " Indian growth story, especially of mass consumption, is intact. Very soon there will be a full stop to the rate hikes." Stock picking is the ultimate tool of success in a bear market than in a bull market. Low price earnings ratio and price to book value compared to their peers are the tools usually followed. At this juncture, most of the punters suggest investing in firms that adhere to corporate governance principles and those that can withstand competitive pressures.

So, does that rule out avoid investing in penny and small- cap stocks? Whenever markets fall historical data suggest these stocks fall faster than large caps. But when the markets recover, their recovery is slower than that of the large ones. Hence, mid- and smallcap stocks should be selected only after thorough analysis, said Dharmesh Pancholi of Sharekhan.