Be Brave! Start picking Bluechip gems in this gloom!

A downgrade of US credit ratings recently by ratings agency Standard&Poor’s from an AAA to AA+ for the first time in the history has triggered a series of heavy sell-offs across the global markets on one hand and also the resulting negativity in sentiments on the other. Despite assurances from the Finance Minister and many experts that India is looking relatively stronger, a negative effect on the market sentiment is inevitable.

The past two weeks has witnessed a horribly messed up situation in the markets with some stocks crashing terribly and others being reduced from silver to scrap. It must, however, be remembered that there is an opportunity in every adversity and for a genuine long-term investor, such a situation has to be construed as an opportunity to sneak into some heavy balance sheets.

Any stock market veteran would have observed over time that after every occasion when such jolts shock the markets, it takes time to revive and recover to previous levels. However, it is also pertinent to note that when such recovery does eventually happen, it is more often or not the Bluechip heavyweights that lead the way while their small-cap counter-parts may have reduced to pennies, if not vanished completely out of the scene.

When an economy grows fast, it is often the positive sentiments and somewhat unreal expectations that shoot up the small-caps, some mid-caps and even pennies to a level that put their fundamental fair value to huge shame. It has to be kept in mind though, that when a situation like the current one unfolds and the economists and ‘Gyanis’ start projecting a slowdown in growth, it is these smaller companies with no fundamental backings that take the maximum beating. Smaller companies whose current valuations are not justified by their fundamentals almost always have to struggle and could easily very well slip into heavy losses if the situation worsens further. It is therefore always best to stick to heavyweight bluechips with strong balance sheets instead of getting into risky mid-caps and small-caps when in a cloudy weather. While this does not, by any means, imply that all small and mid caps are necessarily bad, the importance of investing concretely based on fundamentals should not be undermined

It does not take a rocket scientist to predict with such kinds of uncertainties and panic lingering around, volatility and perhaps even heavy corrections in the market are here to stay - for a short while atleast. While the markets may seem like an astrophysical black hole to get into at this point and despite advices from ‘experts’ and ‘analysts’ to stay away, it wouldn’t be a bad idea to watch out for opportunities at every heavy dip and start cherry picking some bluechip gems with heavy balance sheets which may be available at so called ‘throw-away’ prices during such crashes. Remember that ‘It is always the darkest before the dawn’ and it is more often or not, these strong large-caps that weather the storm and come out with flying colours when the recovery does indeed take place