After Black Friday on 26 February, when Sensex corrected 1939 points, scores of equity and mutual fund investors have been a harried lot. Nifty and Sensex have lost close to 7% from their peak levels in mid-February. As usual the big question is; whether this is the time to sell and move out of equities? On the contrary, use dips to buy. Here are 10 reasons you should be buying stocks after Black Friday.
Put the Nifty movement in perspective
It is easy to get carried away by the sharp fall in the Nifty. A 4% loss in the Nifty in a single day can be disconcerting to the best traders. Just try and put this in perspective. Between March 2020 and February 2021, Nifty rallied from 7,610 to 15,300; a mindboggling 101% returns in 11 months. In the backdrop of such a frenetic rally, a 7% correction in the Nifty in 15 days should hardly matter. After all, traders need to book profits too.
India is still a solid economic growth story
For sceptics who were salivating that India would struggle to match up to China’s growth, the latest IMF should come as a surprise. IMF declared that India would grow at over 13% in FY22 and will be the fastest growing large economy in the world with GDP above $2 trillion. That is reason enough not to worry too much about Black Friday.
For now, liquidity is still abundant
The spate of FPI selling in the previous week made investors jittery. One thing is certain that FPIs are not relenting in a hurry. Taper may still take a long time to happen and till then passive flows will keep flowing into India. The MSCI upgrade is just the tipping point for more flows.
Governments need low bond yields to borrow
One concern last week was that rising bond yields spooked equity markets by raising cost of capital and borrowing costs. While bond yields have been rising, governments across the world need to borrow trillions of dollars and cannot afford high bond yields. Forget the spike, bond yields will have to eventually taper.
Hey, Black Friday is a bargain sale
Warren Buffett once said it is unfortunate, we do not treat stocks the same way as a bargain sale or attic sale. When a quality stock corrects, it gives an opportunity to buy into quality at a lower price. When you were willing to buy top notch private banks in mid-February, why hesitate now when prices are 10% lower?
A good story is still a good story after the crash
Has Black Friday crash changed the fundamental story of stocks like Infosys, TCS, HDFC Bank, Reliance, Kotak Bank etc. These stocks proved their mettle over the last 30-40 years. Even after Black Friday, they remain extremely valuable stories. This crash may have shortened your required holding period.
We hardly need all the money right away
If you panic and sell, what do you propose to do with the money? Are you confident of identifying profitable investment opportunities in future? One thing is axiomatic that the best returns on stocks come from holding long enough. A market crash gives you an opportunity to restructure holdings and shift to quality, but selling out is rarely a good idea. Instead, use corrections to exit vulnerable stocks and re-allocate funds to quality holdings.
You only need to worry if you are leveraged
How much should you worry about the crash on Black Friday? That depends on whether you are a short-term trader with leveraged positions or a long-term investor. If you have borrowed to invest or trading on margins, you obviously have to be extremely stringent about stop losses, profit targets and in-built discipline measures. However, if leverage is not the issue, there is no tearing hurry to change your view.
You own the business of the company not just the stock
Fidelity’s legendary fund manager, Peter Lynch, famous said, “Behind every stock there is a company and behind every company there is a business. Just worry about how that busines is doing and what the future holds out for the business”. That should be your approach too. If you are holding a heavy engineering stock and if the capital cycle is topping out, it is a structural problem and you need to act. The Black Friday correction is nowhere close to anything like that.
You make the best returns in a crash
Have you heard of Sutton’s Law? It originated from a bank robber, William Sutton, who when asked why he robbed banks, replied “that is where the money is”. Sutton’s law is very popular in medical diagnosis where you look for obvious diagnosis rather than complicating with too much subtle thinking. This is the time to apply Sutton’s Law to stock markets. Why should you buy stocks in the crash? Because that is where the value is!