Invest based on fundamentals

The volatility is finally here and many may be relieved to see the twoway movement in stock prices. Ironically, the single direction in stock prices had become a bother for many investors as the market's comfort with upward movements was beginning to pose a challenge. There has been a sense of loss of not being a part of the rally for many investors and the fact that stock prices refused to cool down even after rising 50-80 percent had made matters worse.

But then, when it comes to equity markets, you also need a lot of patience. The markets are bound to test your patience both when they move up or down but you can make money only when you stick to your conviction. For instance, during last October, the mayhem made many lose patience with equity though many knew that many stocks did not deserve the hammering they received

. It was not easy for those who entered the markets in October, as many stocks languished at the same prices for the next few months. In hindsight, those who bet on equity at the October levels are laughing all the way to the bank with the markets having risen by a whopping percentage.
It is precisely for this reason that the current rally puts fear among many as two quarters are too short a time for the economy to switch into a growth phase. However, this can be a period of consolidation and hence the intermittent downtrend would be more than welcome by all. It is in this context, the current mild weakness, witnessed during the week, would please many.

If you are looking for an investment strategy, go for a combination of sectors and stocks. The relevance of stock picking is more important than earlier as it is natural for investors to chase sectors or stocks which look cheap after corrections. For fresh investors, stocks from the mid-cap range can be a better option as they look attractive in comparison to their previous highs.

Also, the turnaround in the market trend has brought back momentum to these stocks. Investors, however, will have to look beyond the PE ratios and yearly highs for their investment picks as the coming quarters are likely to be tough for the corporate sector in general and more so for inefficientlymanaged companies.

As a result, quarterly performances are a good indicator and hence you need to track the top and bottom line numbers. While a few sectors are likely to offer growth opportunities, the management of fall in growth should be the determining factor for investments.

Even in the present environment, a few sectors show promise of faster revival and companies from infrastructure and real estate have been heading the list. History has shown that a global economic recovery is led by sectors like infrastructure and construction as public spending is likely to push things.

In the current environment, technology could be another sector with most companies having the wherewithal to fight the downtrend. Many companies from this sector have the liquidity to manage the downtrend and with their cost-cutting measures in recent times, most companies could emerge out of the current crisis successfully. However, here is a word of caution.

Irrespective of the sector, stick to large-cap stocks and preferably industry leaders as they have better management capabilities to manage the downtrend. As you would have noticed, mid-cap stocks look a lot cheaper when compared to their last year levels but you would be better off investing in large-cap stocks as there are plenty of options