Sensex hits record high even as some stocks sink to 52-week lows: Here's what to do

Experts said investors should avoid taking leverage bets and pick stocks just because it has corrected in double-digits in the recent past.

 

The Sensex hit a record high of 36,749.69 on Monday but traders are not rejoicing because more than 300 stocks on the BSE hit a fresh 52-week low. When markets scale fresh peaks, one ought to have seen more stocks hitting fresh 52-weeks highs. However, in the current scenario, it is the other way around.

Stocks which hit fresh 52-week lows on the BSE on Monday include: Hero MotoCorp, ICRA, Bajaj Auto, Swaraj Engines, Apollo Hospitals Enterprises, BEML, JK Cement and Sundaram Finance.

 

If you are stuck with stocks that are hitting fresh 52-week lows on a daily basis then your portfolio might need a re-look. Experts said investors should avoid taking leverage bets and pick stocks just because it has corrected in double-digits in the recent past. The emphasis should be given on quality.

Investor needs to very selective in the current phase and only add quality companies where valuations are reasonable. “Investors are advised to review their portfolio and stay invested only in quality companies. We favour consumer companies, private sector banks (HDFC Bank, IndusInd Bank)/NBFCs (Bajaj Finserv), auto/auto-ancillary companies (Rico Auto, JK Tyre & Industries and Apollo Tyres) and select IT services stocks (Infosys, Tata Consultancy Services, HCL Technologies and Persistent Systems).

We advise investors to switch on rallies into other outperformers instead of waiting by. Many mid and smallcaps still have over 25 percent downside visible.

Where is the market headed?

In the last six months, the CNX Midcap and Smallcap indices have dropped 15-22 percent, whereas the benchmark indices are sitting pretty with gains of 3-6 percent. Midcaps have seen severe selling pressure and many stocks which had been market favourites in 2017 have lost close to 30-40 percent of their value in the last few months.

This, experts said, indicate a twin paced market behaviour. “It looks like investors are moving away from high beta stocks in the mid and smallcap space to more fundamentally driven largecaps.” But analysts’ are hopeful that the current divergence between the broader market and largecaps might not exit for long.

There is no denying that new highs are being driven by a handful of scrips. It is important to understand that such a divergent environment may not prevail for a long time if a prolonged uptrend in indices picks up once again beyond new lifetime highs.

The correction is healthy as the excesses of last year one-way rally are getting sorted out. Speculative stocks that ride the market momentum are hardest hit during the volatile phase. It looks like the market is re-evaluating excesses of FY18 and speculative stocks that ride the market momentum are hardest hit during the volatile phase. Market focus has shifted from chasing alpha to more fundamental risk aversion for the time being.

MORE WILL UPDATE SOON!!