Corona pandemic has started eating into the vitals of our Indian stock market. While the central and state governments have armed themselves with testing kits and enforced social distancing norms, the Indian stock market has touched new lows. And surprisingly, crude oil prices have been trading at negative prices. Several brokerage firms must have failed to provide correct crude oil tips. Going by the reactions from seasoned investors and veterans, the picture isn’t rosy.
This is the time where we have to remind ourselves of the maxim attributed to Warren Buffet which says, “Most people get interested in stocks when everyone is. The time to get interested is when no one else is. You can’t buy what’s popular and do well”
Read on to understand the portfolio strategies for investing in uncertain times in India.
#1: Value Investing
Value investing is a timeless skill. Value investing entails investing in blue chip stocks. Blue chip stocks are fundamentally strong. For instance, stocks of companies such as Hindustan Unilever, Asian Paints, Castrol, etc., are fundamentally strong. When Sensex and Nifty prices are falling continuously, please be cognizant of the fact that business fundamentals of blue chip companies do not deteriorate.
More often than not, blue chip companies have strong competitive advantage and enjoy superior market share.
#2: Pharmaceutical Stocks
It doesn’t require much clairvoyance to assert that pharmaceutical stocks are the safest bets in the present market turmoil. Ever since the pandemic and lockdown started raring to go up, people began stocking medicines. Moreover, in the last couple of years, Indian pharmaceutical industry has witnessed decent stabilization in FDA aspect.
#3: Wide Moat Stocks
Another portfolio strategy is to accumulate wide moat stocks. You many now ask – How to identify wide moat stocks?
There aren’t any written rules to identify wide moat stocks. My thoughts and inputs are molded by my detours, experiments and experience with Shyam advisory.
The market capitalization of wide moat stocks is huge. To quantify, market capitalization is usually more than 50000 crore. And yes, wide moat stocks have very high RoCE (Return on Capital Employed). Companies that are profitable tend to have high RoCE.
ROE (Return on Equity) is yet another fantastic measure that helps us identify wide moat stocks. There are two ways to pick a wide moat stock. Choose an industry / sector. Compare the ROE of top 10 players. Purchase that wide moat stock which has the highest ROE.
Another way is to calculate the 5-year average ROE of top 10 players. A company whose present ROE is greater than its 5-year average can be picked.
It’s recommended to choose a combination of RoCE, Market capitalization and RoE when investing in wide moat stocks. At a time like this, it’s likely that wide moat stocks are trading at undervalued and discounted prices.
#4: Dividend Stocks
Consider investing in dividend stocks. Many investors distance themselves from dividend stocks as dividend returns are usually anywhere between 1%-3%. Stocks that pay dividends consistently should be preferred. Needless to say, if there’s consistent and decent growth in dividend being paid, such stocks should be in your portfolio.
Let me draw the curtain now. It’s important to not panic. Investing isn’t for the faint hearts and fragile minds. Prepare a portfolio tracker. Do fundamental analysis. And most importantly, be patient.