One has to take the statement I made in overall context of the markets. One sector being market favorite doesn’t mean other sectors cannot move up. The idea here is to look out for sectors which are going to be market favorites and are most likely to throw up the biggest winners.
e.g Post Jan 2018 correction if you see, HDFC Bank went down from 1100 odd levels to bottom out at 942 in Nov 2018 and went up to post highs in vicinity of 1300. This upmove provided returns of 35% or so.
In contrast a company like Atul Ltd posted a high of 2900 in Jan 18 and did not correct much all during 2018-19 and posted lows near 2500-2600 and then reversed and took out the previous high in August 2018 and kept on going up to post highs of 5400. Which amounts to a lot of returns as compared to hdfc bank. Similarly Aarti Inds posted a high of 580 in Jan 2018 and hardly corrected much to post a low of 500 all during 2018-19 and then went on to post a high of 1070. Idea should be to look out for sectors or stocks which dont correct too much and go sideways all during correction and these are the very stocks which post corrections will post big returns. (Caveat here is that there will be a lot of stocks/sectors which are beaten down out of shape during correction and will double/triple in upmoves but we are not too confident about where they will bottom out and hence its difficult to bet big in these names.
Another example of an interesting situation came from a friend of mine who is in aluminium business. He said he has been accumulating Nalco shares in the range of 25-27 and expects his investment to atleast double in next 2-3 years That made me curious and I looked at long term charts of Nalco and found that the lowest levels posted by Nalco since 2004 were in range of 24. And each time the cycle turned as it inevitably does, the stock price doubled and often quadrupled. Such a simple logic surprised me and as of date I think it deserves serious consideration. I think in such cyclical sectors in companies which we feel are going to survive (who dont have too much debt or lots of cash on balance sheet) one can look out for winners.
The current correction will throw up a lot of net net cash bargains. Where cash on balance sheet will be some times more than market cap or enterprise value. These are also interesting models to follow. One such company which has come to my notice is Selan exploration which has currently market cap of 105 crores, investments, cash and equivalents of 155 plus crores and no debt. Because oil has crashed big time we need to see if there are huge losses in next quarter or two to wipe out some cash and equivalent but overall it looks interesting to atleast watch the situation. I have no investment in the company but have a lot of academic interest to see how the situation plays out.