In the last two years, stocks have rallied substantially and many investors particularly in 2015, missed the bus, when it came to investing.

The Sensex has now hit a 14-month low, as mayhem has spread across the globe on account of Chinese growth concerns. Is there more downside risk left or do we buy stocks now is the question.

Stick to domestic growth stories

With the economy likely to revive, look at companies that may not have a global exposure. Most of the Sensex companies have a global presence. So, you could stick to a domestic play including the banking, power and infrastructure sector.

Stick to fundamentals of a stock and not where the Sensex is heading

Look at stocks that you believe are undervalued and would continue to grow. Say for example an ICICI Bank. The stock has tremendous value merely because of stake in the life insurance and health insurance subsidiaries. Apart from this the bank is trading at a one year forward p/e of just 10 times. It has also hit a 52-week low of Rs 244, leaving very limited room for a downside.

Look at the price you are paying and potential for earnings growth

Look at the price you are paying and the potential for tailwinds. Say for example in the case of ICICI Bank, an economic recovery would lead to better earnings growth and reduction in non performing assets.

This is an excellent time to buy shares of beaten down names from the large cap space. Several companies have hit their 52-week lows including banking names like Axis, ICICI Bank, State Bank of India and L&T. However, stick to quality names with less international exposure.

Shares like L&T may have further downside risk, given the huge exposure to international markets and dependence on international orders.

GoodReturns.in