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9Five ways to beat volatile marketsJul-02-2018

Five ways to beat volatile markets

Blog by – Mr. Dhruv Ajmera
Stock markets are always on the move. Prudent investors try to assess the broad trends in the markets and invest accordingly. At times, it is difficult to identify a clear trend in the markets and investors are left wondering about how to approach the markets. The Indian markets seem to typically going through such a phase right now. The benchmark NIFTY 50 index hit an all time high above 11000 levels at the start of the year 2018 and eased thereafter. The index has been hovering in a range over last four months, witnessing a good support around 9900 mark before recovering. Which strategy should investors resort to in such kind of an environment? Here are five ideas to beat volatile markets and to engage in wise investing.

Look for commodity driven sectors and stocks
Listed businesses which are directly involved in importing and exporting of commodities like metals and crude oil tend to fluctuate more in tune to the global commodity prices. These companies earn their revenue from bulk buying and selling of commodities either as a raw material or final product. Many times, shares of such kind of companies move in line with the global commodity prices and offer a good opportunity for local investors to beat the volatile nature of the broad markets. 

Keep a close watch on global newsflow
Many a times, the local business environment is not supportive as major sectors are going through testing times and stock prices are either moving in a choppy manner or are witnessing listless movements. However, positive global news releases, either pertaining to the major economies or sectors can bring in a much needed push to the direction of the markets in such times. Investors need to keep a watch on such newsflow to grab the stocks of such companies which have a direct or indirect linkage to such countries or sectors.

Focus on FMCG shares
FMCG stands for fast moving consumer goods. These are the companies which are involved in manufacturing items of daily consumption like packaged foods, Retailing, stationery products, personal care products etc. The demand for these products is essentially tilted upwards and is expected to be strong in a country like India which is experiencing rapid urbanization and a thriving middle class. Rising rural income, booming young population and increased media penetration should support the demand for such products, thereby supporting the revenues of companies producing them.

Government policy driven sectors/stocks
Government initiatives towards a specific sector or state could also bring in a one sided movement in stock prices of the companies which are likely to see an impact from such a move. A particular sector can benefit from the government action on opening up a particular commodity for exports or imports. Other policy measures like increasing minimum export/imports taxes on a group of commodities and other soaps can also support a particular group of companies.

Check out the Bluechip counters
No matter which phase the stock markets are in, sound businesses with established brands, quality management and a proven business record would always do well. No wonder these companies, popularly called the Bluechips top the list for investors of all kind. Investors can use the volatile markets as an opportunity to increase their exposure to these stocks as they have a relatively high scope of wealth creation from a longer term perspective. Also, there is a wide array of information available for these companies and their businesses given the extensive coverage from the media and the analysts.
With the sideways movement in the market likely to continue for a while given the current environment, investors can adopt a combination of the above strategies to stay on the winning course.  The long term attractiveness of the local equity markets stays in place and the economic growth momentum is looking strong. The World Bank has recently estimated a growth rate of 7.3% for India this year and 7.5% for 2019 and 2020. It also noted that the country`s economy has recovered from the effects of demonetization and the Goods and Services Tax. This should offer good support for the local equity indices going ahead.

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