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The Wait For A Correction Will Test Your Patience, Stay Focussed

Don’t get impatient. Put your money to work only when your numbers tell you to, writes Niraj Shah.

The Wait For A Correction Will Test Your Patience, Stay Focussed

Are you waiting for the markets to crack? If yes, then the point to ponder on is: is the market waiting for your patience to crack? There is a lot of talk every week, almost every single day, by many experts that a correction is due. The latest commentary is from CLSA, where Laurence Balanco has indicated that he expects a short-term correction.

Due to the bullish long-term profile for the Nifty, any short-term weakness back towards the 8,989-9,191 area should be seen as an attractive buying opportunity in anticipation of further gains towards our next target areas at 10,350, 11,547 and 12,000.
Laurence Balanco, Global Technical Analyst, CLSA

Just look at the index. In the last 20 days, the Nifty has hovered around the level of 9,600, while specific stocks have corrected strongly in this period.

Frontline stocks like Bharat Heavy Electricals Ltd., Lupin Ltd., and Sun Pharmaceutical Industries Ltd.; liquid stocks like Dish TV India Ltd., Rural Electrification Corporation Ltd.; and oil marketing companies are at least 10 percent off the highest levels over the last one month.

Some market watchers believe we are already in a corrective move of sorts, and that there are some telltale signs., but that’s for another column.

The Wait For A Correction Will Test Your Patience, Stay Focussed

Is oil and gas the Achilles Heel? Yes, one can argue, because a simple look at the movement suggests so. Six out of the top 10 losers last week were public sector companies, and four were from the oil & gas basket. The BSE Oil & Gas Index declined 2.4 percent despite Reliance Industries Ltd. gaining 3.5 percent. There’s visible pressure on the government-owned companies.

  • Crude oil, correcting the way it has, poses problems for all upstream oil companies owned by the government.
  • Oil marketing companies are hit with inventory losses due to the crude fall, and the RIL-BP venture into fuel retailing also poses some threats.,
  • GAIL (India) Ltd. has problems of its own due to the fall in gas prices.

Despite the low valuations in the technology space, interest is likely to be tempered as not only does NASSCOM’s guidance seem somewhat optimistic, Accenture has scaled back its revenue growth estimates too.

There is only a certain amount of money that can flow into the likes of HDFC Bank Ltd. and Kotak Mahindra Bank Ltd., considering they are trading at record highs and are valued close to 6 times price to adjusted book value for financial year 2017-18 earnings.

With all good things terribly expensive, even in the midcap space, many believe a correction is healthy for the market.

Markets don’t move in a straight line and were the Nifty to go to levels that Laurence Balanco is thinking off, there’s a fair likelihood of a slightly larger correction at the broader end. So, while you may be waiting for the markets to correct meaningfully, the more important thing is about your approach – Don’t get impatient! Put your money to work only when your numbers tell you to.

Niraj Shah is Markets Editor at BloombergQuint.