Time for bottom fishing...

Is it safe to invest money in equities? — would seem to be the all-important question at the moment. Though benchmark indices have shed about 950 points over the past month, the prevailing market sentiment is that there is no need to reduce risk over the long term.

A quick sectoral analysis over the past one month shows that sectors like capital goods, FMCG and shipping have managed to stay put where others have failed to stand their ground. Sectors like consumer durables and textile (ET index) have even managed to gain 1.95% and 2.57%, respectively, during the said period. Key stocks in these sectors have managed to log returns in the range 6% and 85% over the past one month.

Sectors like sugar (down 16%), oil & gas and NBFC (both down 9%), logistics, capital goods and construction (all down 10%) have been the worst-hit sectors over the past one month. So, do investors need to run for cover during a broad market fall? A cautious approach to investing would be to invest in ‘healthy’ sectors, which have the strength to bounce back once the market recovers from the corrective trend, said experts.

Sectors like banking, realty, consumer goods and IT continue to remain favourites with market participants. Though most broking houses have sounded an alert to clients, their advice is to indulge in ‘bottom-fishing’ for bluechips while the market is on a downtrend. Should investors need the protection of slow-moving defensive sectors in current market conditions?

Fundamentally, defensive slow-moving sectors are a group of stocks that continue to perform irrespective of where the economy is heading. Traditionally, sectors like pharma, FMCG and utilities have been spot-on defensive sectors. “From the trend evident over the past one month, sectors like capital goods, textiles, consumer durables and shipping have been doing moderately well,” said Religare Securities head-institutional business Sangeeta Purushottam.

“Current market conditions make it difficult to spot defensive sectors using historical data. Investors should forget the idea of investing in slow-moving sectors; they should continue to invest in sectors that have a growth horizon of 2-3 years,” Ms Purushottam added.

Given the fact that there are many ongoing infrastructure projects in the country, capital goods sector is expected to do well over the next four years. As regards the textiles sector, many manufacturing companies are moving towards expansion and modernisation. The import-dependent consumer durables industry would do really well if the rupee gains strength, analysts said. Performance of FMCG and shipping stocks are cyclical in nature. FMCG has not done well over the past one year. Investments in shipping should give moderate returns as there has been a sudden spurt in cargo activity.