What is the meaning of volatile market?
The market whose direction is unknown and mostly inclined towards downside.
should you go for blue chip stocks or madcap stock or what to choose between returns and stability?
A volatility of the stock market is part of it and it will exist as long as stock market exists.
What happens during volatility in the market?a) Market turns sideways. Market doesn’t move to any particular direction, it moves up and down and makes difficult for investors and traders, especially for retailers.
b) Stocks go into profit booking even strong fundamental stocks. Mid cap and small cap stocks will become worst.
c) Very less participation in markets so very low trading volumes. It becomes difficult to sell illiquid stocks.
d) Very high chances of losses
e) Stock prices have corrected sharply, yet investors are not sure whether to start buying because they are clueless about the future course of the market.
During Such scenarios the following steps can be taken
Proven Strategy
The proven strategy in bearish market and in volatile market is to keep buying blue chip stocks.
What is the meaning of blue chip stocks?
Stock of a well-established and financially sound company that has demonstrated its ability to pay dividends in both good and bad times.
These stocks are usually less risky than other stocks.
The stock price of a blue chip usually closely follows the Nifty and Sensex.
These companies usually have a long history of strong balance sheets, stable earnings and excellent credit ratings. Investing your money in blue chip stocks is safe compared to investing in Mid cap and Small cap stocks.
Blue chips companies are large companies with a proven track record over a long period.
These companies have been in their respective businesses for years and have seen the ups and downs of business cycles.
Generally, they are large-cap stocks and offer good liquidity in the markets, which ensures that investors can exit even in very low volume scenarios.
In past we have seen that once the crises finish the blue chip stocks start recovering and after certain period provide good returns.
Also, most of these stocks are well researched by analysts and there are little surprises to offer either positive or negative.
The conclusion is investment in blue chip stocks is safer ten mid cap and small cap with modest gains to high gains in long term.
The following is the list of Blue Chip companies
Infosys Technologies
State Bank of India
Tata Motors Ltd
Tata Powercompany Ltd
ICICI bank Ltd
JSW Steel Ltd
Tata Steel Ltd
HCL Technologies Ltd
Wipro Ltd
Bharati Airtel Ltd
ONGC
NTPC
Reliance Industries
Tata Consultancy Services (TCS)
Indian Oil Corporation (IOC)
Axis Bank,
Bhel,
Cadila Healthcare,
Canara Bank,
Coal India,
Godrej Consumer,
HDFC Bank,
Jindal Steel,
Lupin,
NMDC,
Punjab National Bank,
Rural Electrification Corporation,
Sun Pharma,
Ultra Tech Cement.
FOR RISKY CUSTOMERS
If the blue chips’ modest performance with relatively lower volatility doesn't excite you, you can check out mid- and small-cap stocks. The risk (that is, apart from the risk you are taking investing in them) though is that many a time they may have managements that do not have a proven track record. They usually also fall into the universe of companies enjoying a high-growth phase and expected to benefit more from the economic growth.
However, as markets fall, midcap stocks generally see a steeper correction in stock prices. This is primarily due to the low-floating stock available. As investors rush to exit, these stocks fall faster than the large-cap stocks, where there is ample liquidity.
The Nifty has corrected 24% from November 2010 till mid 2011, while the CNX mid-cap index has corrected 35% and several mid-cap stocks have corrected about 60%-70% from their peaks.
On the other side Quality midcap stocks will deliver higher risk-adjusted returns, after the market stabilizes.
However, it is not easy to pick mid-cap stocks as information about them won’t be easily available to you because they are under researched. So, the advice is to tread with extreme caution. Also, invest only a small part of your total portfolio to these stocks because of their higher volatility.
BGR Energy,
Biocon,
Coromandel International,
Crompton Greaves,
Deepak Fertilisers,
eClerx Service,
Emami,
GRUH Finance,
Guj Gas Company,
Hawkins Cookers,
Indraprastha Gas,
Info Edge (India),
Kansai Nerolac,
Karur Vysya Bank,
M&M Financial,
Manappuram Finance,
Opto Circuits,
Page Industries,
Shriram City Union,
Thermax,
TTK Prestige,
Voltas,
Zydus Wellness.
Defensive Bets
With that we move on to the last recommendation of investing in defensive stocks to steer clear of volatility. Though avoiding volatility entirely is not possible in the market, defensive stocks may be useful in minimising the effect. These stocks include businesses that are not cyclical in nature and, moreover, serve necessities.
Pharmaceuticals and fast-moving consumer goods (FMCG), also known as consumer staples, are good representatives of defensive bets.
Investors can look at large-cap FMCG companies as operating margins are expected to improve in the backdrop of falling input prices and the recent price hikes companies’ effected on their products. Defensive stocks offer predictable earnings and good dividend payouts in most cases.
Stocks with high dividend yield can also be considered by investors seeking defensive bets. Stocks that show consistent dividend payouts and quoting at attractive dividend yields can be bought.
Pharma CompaniesBiocon
Cadila Health
Cipla
FORTIS
Lupin
Piramal Health
Sun Pharma
Glenmark Pharma
FMCG Companies
Hindustan Unilever
ITC
Godrej Cons
Dabur India
KEEP INVESTING
As far as retail investors are concerned, it is very difficult for them to time the markets. Instead of waiting for the bottom, it makes sense to start buying. If the markets are corrected a lot but still the direction is not clear then it is advisable to buy through the systematic investment plan (SIP). This facility, quite popular in mutual funds, is available even in stocks.
Buy few stocks at a time and keep adding them as they move downside. Or else plan to add stocks every week or for every two weeks or every month.
If you do not have enough time to devote then you can get in touch with financial advisor. Another way is to do SIP through equity diversified mutual funds.
Depending on your strategy and your existing holdings, you may invest in mutual funds having either large-cap or mid cap funds.
The market whose direction is unknown and mostly inclined towards downside.
should you go for blue chip stocks or madcap stock or what to choose between returns and stability?
A volatility of the stock market is part of it and it will exist as long as stock market exists.
What happens during volatility in the market?a) Market turns sideways. Market doesn’t move to any particular direction, it moves up and down and makes difficult for investors and traders, especially for retailers.
b) Stocks go into profit booking even strong fundamental stocks. Mid cap and small cap stocks will become worst.
c) Very less participation in markets so very low trading volumes. It becomes difficult to sell illiquid stocks.
d) Very high chances of losses
e) Stock prices have corrected sharply, yet investors are not sure whether to start buying because they are clueless about the future course of the market.
During Such scenarios the following steps can be taken
Proven Strategy
The proven strategy in bearish market and in volatile market is to keep buying blue chip stocks.
What is the meaning of blue chip stocks?
Stock of a well-established and financially sound company that has demonstrated its ability to pay dividends in both good and bad times.
These stocks are usually less risky than other stocks.
The stock price of a blue chip usually closely follows the Nifty and Sensex.
These companies usually have a long history of strong balance sheets, stable earnings and excellent credit ratings. Investing your money in blue chip stocks is safe compared to investing in Mid cap and Small cap stocks.
Blue chips companies are large companies with a proven track record over a long period.
These companies have been in their respective businesses for years and have seen the ups and downs of business cycles.
Generally, they are large-cap stocks and offer good liquidity in the markets, which ensures that investors can exit even in very low volume scenarios.
In past we have seen that once the crises finish the blue chip stocks start recovering and after certain period provide good returns.
Also, most of these stocks are well researched by analysts and there are little surprises to offer either positive or negative.
The conclusion is investment in blue chip stocks is safer ten mid cap and small cap with modest gains to high gains in long term.
The following is the list of Blue Chip companies
Infosys Technologies
State Bank of India
Tata Motors Ltd
Tata Powercompany Ltd
ICICI bank Ltd
JSW Steel Ltd
Tata Steel Ltd
HCL Technologies Ltd
Wipro Ltd
Bharati Airtel Ltd
ONGC
NTPC
Reliance Industries
Tata Consultancy Services (TCS)
Indian Oil Corporation (IOC)
Axis Bank,
Bhel,
Cadila Healthcare,
Canara Bank,
Coal India,
Godrej Consumer,
HDFC Bank,
Jindal Steel,
Lupin,
NMDC,
Punjab National Bank,
Rural Electrification Corporation,
Sun Pharma,
Ultra Tech Cement.
FOR RISKY CUSTOMERS
If the blue chips’ modest performance with relatively lower volatility doesn't excite you, you can check out mid- and small-cap stocks. The risk (that is, apart from the risk you are taking investing in them) though is that many a time they may have managements that do not have a proven track record. They usually also fall into the universe of companies enjoying a high-growth phase and expected to benefit more from the economic growth.
However, as markets fall, midcap stocks generally see a steeper correction in stock prices. This is primarily due to the low-floating stock available. As investors rush to exit, these stocks fall faster than the large-cap stocks, where there is ample liquidity.
The Nifty has corrected 24% from November 2010 till mid 2011, while the CNX mid-cap index has corrected 35% and several mid-cap stocks have corrected about 60%-70% from their peaks.
On the other side Quality midcap stocks will deliver higher risk-adjusted returns, after the market stabilizes.
However, it is not easy to pick mid-cap stocks as information about them won’t be easily available to you because they are under researched. So, the advice is to tread with extreme caution. Also, invest only a small part of your total portfolio to these stocks because of their higher volatility.
BGR Energy,
Biocon,
Coromandel International,
Crompton Greaves,
Deepak Fertilisers,
eClerx Service,
Emami,
GRUH Finance,
Guj Gas Company,
Hawkins Cookers,
Indraprastha Gas,
Info Edge (India),
Kansai Nerolac,
Karur Vysya Bank,
M&M Financial,
Manappuram Finance,
Opto Circuits,
Page Industries,
Shriram City Union,
Thermax,
TTK Prestige,
Voltas,
Zydus Wellness.
Defensive Bets
With that we move on to the last recommendation of investing in defensive stocks to steer clear of volatility. Though avoiding volatility entirely is not possible in the market, defensive stocks may be useful in minimising the effect. These stocks include businesses that are not cyclical in nature and, moreover, serve necessities.
Pharmaceuticals and fast-moving consumer goods (FMCG), also known as consumer staples, are good representatives of defensive bets.
Investors can look at large-cap FMCG companies as operating margins are expected to improve in the backdrop of falling input prices and the recent price hikes companies’ effected on their products. Defensive stocks offer predictable earnings and good dividend payouts in most cases.
Stocks with high dividend yield can also be considered by investors seeking defensive bets. Stocks that show consistent dividend payouts and quoting at attractive dividend yields can be bought.
Pharma CompaniesBiocon
Cadila Health
Cipla
FORTIS
Lupin
Piramal Health
Sun Pharma
Glenmark Pharma
FMCG Companies
Hindustan Unilever
ITC
Godrej Cons
Dabur India
As far as retail investors are concerned, it is very difficult for them to time the markets. Instead of waiting for the bottom, it makes sense to start buying. If the markets are corrected a lot but still the direction is not clear then it is advisable to buy through the systematic investment plan (SIP). This facility, quite popular in mutual funds, is available even in stocks.
Buy few stocks at a time and keep adding them as they move downside. Or else plan to add stocks every week or for every two weeks or every month.
If you do not have enough time to devote then you can get in touch with financial advisor. Another way is to do SIP through equity diversified mutual funds.
Depending on your strategy and your existing holdings, you may invest in mutual funds having either large-cap or mid cap funds.
