Stock Market

Follow Warren Buffett now! Buy when irrationality hits quality stocks

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The market had a volatile shakeup during the week gone by, with even the strongest bull on the Street showing nervousness.

Historically speaking, panic selling based on some news or events can be good buying opportunities.

Fundamentals had not changed either for Yes Bank or for housing finance companies such as DHFL for a 50 per cent kind to cut, which occurred on the basis of Street expectations, which are often irrational for the short term, because they are based on herd mentality. But such irrationality offers good buying opportunity in quality companies as the so-called fear is hypothetical and, hence, won’t last long.

Once the fear subsides, these stocks will rebound.

As Warren Buffett had quoted “The best thing happens to us when a great company gets into temporary trouble.

We want to buy them when they are on the operating table.” Another such incident occurred this week! The market regulator’s mandate to cut mutual fund management fees marginally by 0.25 per cent on an average affected the AMC stocks. Although the move looked negative for the AMCs on the face of it, but in a way it has brought in a lot of clarity to ensure margin visibility at least for the next few years.

However, the decision to convert the upfront payment commission compulsorily to trail model should compensate for this negative impact.

Hence, AMCs should not be sold off just on the basis of this news. Event of the WeekThe highlight of this week was by the government move to fire its Bramhastra to clean up the public sector banks by way of merger.

Three lenders –Bank of Baroda, Vijaya Bank and Dena Bank – will be merged by the end of this financial year, which will create synergy, reduce cost and optimise resources in the long run.

This will help them cut costs and compete with the private sector peers and regain market share.

Although this is a long-term process, but eventually the action will reap fruits. Technical OutlookThe Nifty50 became hyper-volatile this week, penetrating the lower channel and later bouncing back by the close near the channel, indicating that it has indeed taken support at the lower channel, which suggested emergence of buying at lower levels.

It is time for the Nifty50 to bounce back after those panic moves. Traders should buy on dips, as it is no time to short positions at this point. Expectation for the WeekAll eyes would intently be on the US Fed, which is all set to hike interest rates by 0.25 per cent next week.

Although the market has already discounted this and may have a short-term impact, but inflationary outlook seems to be deteriorating for the immediate future, which could further accelerate the rate-tightening process.

Tariff wars will be the reason the US Fed would be constrained to increase rates because the cost of goods sold in the US to consumers would be higher due to tariffs. Also, short-term volatility will increase in the market.

Investors should start accumulating quality stocks in their portfolio.

Yes Bank, housing finance companies and oil marketing companies offer value at their current levels and should be accumulated from a long-term perspective. The Nifty50 closed the week 3.23 per cent lower at 11,143.




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Category: Stock Market


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