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Why You Should Avoid Chasing A Pre-Election Stock Rally?

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Many a times investors start chasing a rally and a sudden crash in prices, leaves them wrong-footed. The Indian markets have rallied quite a bit in the last two weeks and from here on, any rally could be a trap.

In fact, the markets are still over valued, given that the Sensex is trading at almost 26 times, trailing p/e.

Look for attractive price points
  
 

Look for attractive price points

When the markets rally, there is always a feeling of being left out, which is why investors tend to start buying at every and any level. However, the only way you can make money in the markets is when you buy low and sell high.

Set a price point, at which you would enter a stock if you find a particular stock attractive. If it fails to reach that point, look for other stocks, which offer an attractive price point.

At the moment, there are so many mid cap and small cap stocks that have turned attractive. We suggest you take a look at the same, particularly some names from the infra space.

There could be a hung parliament
  

There could be a hung parliament

It is always to hazard a guess, as to who will form the next government. In fact, whenever markets have believed one way, it has swung the other way, except in 2014. So, one needs to be very careful, especially since the nation is facing agrarian distress and problems with unemployment.

However, the worse case scenario for the market would be a hung parliament, with a coalition of parties ruling at the centre. While that possibility looks remote, anything is possible and hence investors must exercise some bit of caution as well. Global factors until the election may also play a key role in determining the market movement.

Avoid the penny stocks
  
 

Avoid the penny stocks

Investors, especially traders are advised not to invest in some of the penny stocks. These can be extremely dangerous. In fact, it has happened many a times, that penny stocks have stopped trading at all and investors are left trapped.

One can consider high dividend yielding stocks like Coal India. Normally, a couple of months before elections, one can also tend to look at some of the more defensive bets. These include some of the quality names from the IT and FMCG space. However, it is advised to balance the same with stocks from the other sectors as well, particularly banking.

Beaten down names: A good bet
  

Beaten down names: A good bet

While it is prudent to avoid buying into penny stocks, there are many stocks from different industries that have seen a near 40 to 50 per cent in their valuations. Some of these names include stocks like Indiabulls Housing (dividend yield of 6 per cent), Graphite India (dividend yield of 4 per cent), Reliance Capital (dividend yield of 6 per cent). We are not recommending these stocks, but, are informing readers that some stocks still offer good dividend yield. Whether you need to buy these stocks, would need more of a fundamental analysis.

Story first published: Monday, March 11, 2019, 9:42 [IST]
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