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    The bulls are back! Buy on dips and pick quality stocks to ride the rally


    The government, indeed, conducted a surgical strike on the bears on Friday.

    Jimeet Modi

    CEO, Samco Securities & StockNote

    The founder & CEO of SAMCO Securities, StockNote and the Indian Trading League Company, Modi believes that price is the most important factor in investing. He is credited with developing the AIRM (TM), an approach to screening stocks and businesses in a scientific manner. His role model is Warren Buffett.

    Negative rhetoric surrounded every part of the economy this past week: ‘Death cross formation hints at more short-term pain’, ‘Worst FMCG show likely in 15 years’, ‘Correction in auto stocks not enough’, ‘Iran rules out talk on Saudi attack’.

    When such gloom doom scenario surfaces across all communication mediums, it means the capitulation is over and any good news will kickstart the bull market. The government, indeed, conducted a surgical strike on the bears on Friday, taking the market higher by a massive 5.3 per cent. In one stroke, the government made companies richer by Rs 1,45,000 crore per annum by reducing the effective tax rate on companies to 25 per cent from 33 per cent. Salute to the bold move by the government in the form of ordinance.

    September quarter numbers will see massive upgrades in earnings with a minimum of 10-15 per cent increase in profits due to the tax cut. Valuations of all companies have now become more reasonable and competitive with the rest of the world compared with other emerging markets. This will hopefully bring the FPIs back to India. The Modi Government 2.0 has indeed made retail investors laugh as they continued to pour Rs 8000 crore in the form of SIPs, but the FPIs have done the opposite.

    Event of the Week

    An attack on the oil-producing facilities in Saudi Arabia, although rattled the world, fizzled out eventually, but the most important indicator was the flash by gold, which did not move up and sustain the price rise. It shows that the world is not risk averse and investments will not flow into gold, but will readily come into equity markets.

    This global risk-seeking sentiment will help India quickly recover losses and reach new highs before Christmas.

    Technical Outlook:

    Nifty50 has made a ‘Wide Ranging Day’ bullish pattern, which is a powerful indicator of trend reversal. The market has also reversed from its previous support level at 10,650, completing an important downcycle. The market will continue to move higher with intermittent deep corrections, which should not shake up the confidence of long traders. The 11,000-11,100 range is a good range to go long. ‘Buy on decline’ should be the strategy for traders and short selling should be avoided.

    Expectation for the week:

    The market will take a breather after the massive runup on Friday by correcting some bit. It is important to see when FPIs resume their buying spree and how they take the tax cut.

    ‘Buy on dips’ should be the strategy for all investors and quality stocks should be bought now. Private sector banks, consumer durables and FMCG should be the sectors to allocate money aggressively while at the same time money should also be allocated to smallcap and midcap funds to generate higher risk-adjusted returns. Do not delay but invest before September 30 to ride the ensuing bull wave by entering at the nascent stage.

    Nifty50 closed the week 5.3 per cent higher at 11,274.

    (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of
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    11 Comments on this Story

    H K Doshi321 days ago
    Hope for Best .
    Dilkhush 325 days ago
    Bears will come back next week, so-called quality stocks will lose all the gains.
    ZANJEER 327 days ago
    Next announcement from the govt. will come in January next year - just before the Delhi elections. Till then the market will remain below the highs made in April - May.
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