"You cannot have good news and good stock prices". One may have heard this phrase quite often.

Today, as the markets have turned sluggish, losing around 8 per cent from peaks, you have bad news and good stock prices. However, when the news is bad, nobody is willing to commit, which is why some do not end-up making money. The naysayers may never end-up making money actually.

The bad news

On the domestic front, economic growth has fallen sharply, high frequency indicators like auto sales are disastrous and unemployment is not good news.

Apart from this, issues like tax surcharge to be paid by the super rich has led to savage selling by Foreign Portfolio Investors (FPIs). Some of them who are registered as trusts will also have to pay this tax surcharge.

In July, they FPIs net sold to the tune of Rs 16,870 crores and so far in August they have net sold in the cash market to the tune of Rs 7,710 crores.

Internationally, things are not looking too good either. The trade war between the US and China continues. Bond yields in the US have turned negative, sending a warning of an impending recession, though not always the case. In short, we are inundated with bad news.

The good news

The good news is that stock rices have fallen lower, dividend yields in some cases have become increasingly attractive and there are hopes of a government stimulus. On the other hand we have a new government in place, with a solid majority, which means there would be no political instability for at least close to 5 years now.

Another positive is that we are seeing bank NPAs, particularly the government owned banks falling, and recoveries in the last few years has been good.

Going ahead, there could be some recovery in demand that could happen in the next few quarters, particularly closer to the festive season. The government may also announce some support measures to sectors like the auto sector.

As demand recovers and so does the economy, be rest assured that you are not going to get stocks at these prices. So, one might just be tempted to invest on dips, especially in the battered and bruised midcaps. However, nobody can predict a bottom in place, but, the chances are you can end-up making money, if you are patient. So, look for an investment horizon of 3-5 years.

GoodReturns.in