This week the market lost ground once again in trade and was down almost 2 per cent for the week. The year to date returns for the market is -4.31 for the Nifty and the one year return for the Nifty is -2.13.
Whether it is year to date, one week returns, one month returns or one year returns, it is all negative for the Nifty.
Against this backdrop it is difficult to believe that the markets would constantly move lower. At some stage, there would be some value buying that could emerge.
The problem for the markets right now is the relentless selling from Foreign Portfolio Investors. So far in the month of Oct, 2018, Foreign Portfolio Investors (FPIs) have net sold in the cash markets to the tune of Rs 23,828 crores. Interestingly, since Oct 1, 2018, domestic institutional investors have net bought to the tune of Rs 19,143 crores.
The real problem is if FPIs start dumping stocks of another Rs 10,000-15,000 crore worth shares. This could lead to a huge downside for the markets as domestic institutions, including mutual funds may have already deployed money and may not be able to absorb.
When to buy stocks?
Another 5 per cent lower from the current levels on the indices, will take stocks to very reasonable valuations of around 17 times one year forward earnings. This would then be a great time to start buying aggressively.
So an index level of around 31,900 would be a great time to buy. It would be a good idea to look at some government banking stocks, which maybe beneficiaries of the Bankruptcy resolution and a turn around in NPAs.
In the next few months, expect volatility to continue ahead of the state and general elections. If you are buying now, you need to have a 2-3 year perspective in mind, to make some serious money.