The Nifty has fallen more than 10 per cent from peak levels of 12,000 points which the index hit in May 2019. In 3-4 months, the markets have seen a dramatic U-turn including in heavyweights like HDFC, HDFC Bank and Reliance Industries.
If you are a long term investor, it maybe a good idea to accumulate stocks on declines. Here are 5-reasons to be buying stocks now:
Interest rates likely to fall further
Interest rates are likely to fall further, given the slump in the GDP numbers. The RBI may now be prompted to cut interest rates sharper and faster. The GDP number for the first quarter of 2019, which was barely 5 per cent, was much lower than what economists and analysts had forecaste.
To push growth the RBI would no doubt cut interest rates. Fixed income yielding securities are now offering a very low interest rate of around 6-7 per cent. As interest rates fall, it could lead to more lending, which could push growth higher.
Overall, it may hence be a good idea to buy and hold stocks, as interest rates and stock prices tend to move in opposite directions.
Dividend yields turn attractive
In fact, in some cases they are now even higher than bank depost interest rates. This means some of these stocks would continue to be supported by their dividends, and downside from these levels could be very limited. Of course, dividends depends on profitability, but, we do not expect profitability in the case of mining companies to dwindle too much.
For example, Coal India, NMDC, Hindustan Zinc and an oil exploration major like ONGC is unlikely to see profits dip significantly.
You can never have good news and good prices
Since the news is currently bad on the economy, stock prices have turned attractive. You cannot have good news and good stock prices. If you are a long-term investor, you can be rest assured that eventually there would be a recovery in the markets and that is when you would not get prices at these low levels.
However, we do not advocate that individuals go into the market and chase stocks at every and any price. Buying in a staggered manner can have its own benefits. We again wish to emphasize that investors should look for high-quality dividend paying stocks.
Most of the bad news is factored in
Most of the bad news has been factored in by the markets, especially slower than anticipated economic growth. High frequency data maybe bad for one more quarter, but, beyond that we see some recovery towards the second half of 2019-20. Particularly it is anticiapted that we may see some buying ahead of the festive season.
Hence, buying stocks on declines could reap rich rewards.
No place to hide
Actually, the mantra to make money in stocks is to "buy low and sell high". At the moment, one is getting prices at much lower levels, compared to any time in the past 1-2 years.
In any case, where will investors park their money. Gold has already rallied 30 per cent this year and the upside from here is very limited.
On the other hand, nothing much can be expected from the real estate sector, which has stagnated and seeing no buying. FDs are generating just about 6-7 per cent. This leaves investors with very limited options.
All in all, it is a good idea to buy in small quantities and to build a portfolio. You do not want a scenario, where you have missed the bus.