Nifty had a strong run up from levels of around 18900 in Oct 2023 to 26200 in Sep 24. This is a 7300 points rally on an index… which amounts to 38% returns. After such a strong run up some amount of correction is expected, and that is what is happening.
There was a lot of froth and fanfare in markets, more so in the small and microcaps and SME kind of stocks. Stocks tended to go up based on narratives, and on posts by Twitter gurus, where their followers lapped up whatever was written. Such kind of excesses tend to get corrected from time to time during market corrections.
In the backdrop of the above rally from 18.9k to 26.2k, the recent low on index at 23.4k is close to 38.2 % retracement level (fibonacci level). Daily momentum indicator readings are also showing oversold readings, and at places there are positive divergences. So I think if the markets have to bounce back ( I have no idea whether they will or will not bounce back) , this seems to be a right area to do so from. With the kind of correction we have had, a lot of people including seasoned investors and technical analysts are not too sure whether we have hit a major top on indices and its a sell on rise market, or this is a regular correction and its a buy on dips market. (I myself am not too sure where and how things are headed , but think that we can see a decent bounce, and if that comes around there will be the question as to how far this bounce can sustain. ) This kind of market provides good opportunities to stockpickers who can spot good growth companies with a 2-3 year view.
The results season is nearly done, with very few results yet to come out. Overall it has been a bad quarterly results season… But some companies have reported outstanding numbers and commentaries from management. That provides us with a working list of stocks where growth visibility for next few quarters or next 2-3 years is clear. Idea should be to make a list of such companies, and see how they have reacted to the results and how valuations stack up, and then look for probable low risk entry points. And if we get a bounce in the positions we want to exit, it should be utilised to plan exits, irrespective of the kind of loss that exercise entails.
I had small percentage of cash in my portfolio as I had trimmed some holdings because notional stop losses had been hit. I deployed that in the last couple of weeks. Plus I have done some churn to portfolio by trimming/exiting companies where results have not been on expected lines, or technical charts had indicated exits.