Hi Friends,
In continuation with the previous post, where we discussed plan to invest during market crash, here is the most awaited part in series - Finding Market Leaders.
Before I begin, let me make it clear that this is not a recommendation to buy or sell stocks, this is a study to find common traits for next market leaders, and we advise readers to do their bit of study before drawing any conclusion from this study.
Now coming to the topic, as you would have already felt that financial markets across the globe are reeling under pandemic fear, there is widespread selling of assets, be it oil, metals, real state, nothing is spared. So there is no harm in accepting that we are dealing with recession.
And if you have to ask about the time when this situation will possibly get over, there is none other than our best friend - History. Ask him and he has all the answers. If you see last two major recession hit the financial markets in year 2000 and 2008, the first one was bit painful (lasted for close to 4 years) and stretched a bit due to 9/11 but the second one was swifter (last an year or so).
Going by the same traits, the current recession can lie anything between these two times lines, but I believe it to be more swifter than previous two. The single most reason is that the economic impediments are induced by authorities due to pandemic restrictions and as they will start returning to normalcy, the economic activity is expected to pickup. Though we cannot deny the domino effect of the restrictions on all sectors, some will surely outpace the recovery from other. And that's the motive of our research today, which sector is likely to pickup faster, and who will give us our next Market Leader?
If you go by the crash, the 2000 crash (dot com bubble), epicenter was IT sector. And the market leaders in next bull run were from these sectors. The 2008 crash (the financial meltdown), was in Financial sectors and surprisingly the market leaders from that time onwards were, you guessed it right! Financial stocks.
The single most reason for this behavior is the kind of support these affected sector receives after crisis, be it from government or society, even the innovations and emerging technologies becomes necessity for survival of these sectors and when you have all these, its a recipe for next Market Leader.
Now coming to the current crisis (the pandemic induced), it is clear that this crisis is not sector specific and that makes it harder to pin point the next market leader. This crisis has potential to change habits as well, and that makes it easier for some sector to thrive and tougher for some to survive. Like companies manufacturing hygiene product will find it easier to sell products and companies supplying redundant products like newspaper will have to fight for survival.
Having said that, the competition in favorable sector will increase, companies will become lenient and eventually have to fight for smaller share in bigger market. Whereas many companies in unfavorable sector will shut down and few will remain to hold bigger share in smaller market. Of course the script will take time to play but for long term investment, you can keep a tab on unfavorable sectors for sure.
Now coming to the most affected sectors due to restrictions, few name comes in your mind is Airlines (Operators, ticketing partners, Jet Fuel providers), Travels (Auto, Auto ancillary, Petrol/Diesel ), Tourism (Hotels, Alcohol), Consumption (FMCG), Pharma (API, general medicine), Asset management firms. Though the effect will linger on wider sectors, but these are the first one to bear the brunt and according to our theory, the high probability of producing the next Market Leader.
So here is the list of stocks that can possibly become market leaders, in next bull run.
No. NameSector
Interglobe Aviation Ltd. - Airlines
HPCL - Fuel
Maruti Suzuki India Ltd. - Auto
Endurance Technologies Ltd. - Auto Ancl
ITC - Hotels
Associated Alcohols & Breweries Ltd. - Alcohol
Natco Pharma - API
Vinati Organics - Pharma
Nippon India Asset Management. - AMC
TATA Elxsi - IT
This list is to provide a direction to our reader for searching possible Market leaders, please do not take this list as is and put your money blindly, do your own research in these areas, you may unearth some more stocks. The common trait of these stocks, are close to zero liability, strong brand value, and ability to jump back from market crash.
Also remember that a company is good only when you get it at good price, as mentioned in previous post, the market can behave in any direction from this point (NIFTY 8000), stick to your plan of investment, do not put all your money together but in staggered manner. You may find a stock quoting Rs. 150 one day and slide to Rs. 100 within a week, similarly it can go up to Rs. 200 in a month as well.
You cannot control the prices of stocks (until you are a billionaire) but you can certainly have a plan. Investing without a plan is like jumping from a plane without a parachute. So don't do that, best thing is to read about the company first, validate the thesis, and once you are sure, enter into the stock with not more than 25% of your actual investment target, keep cash handy, and enter only when the prices enter your planned zone (lower/higher). There is huge sale going on in stock market nowadays.
Hope you make use of the lockdown by staying safe at your home, reading about your investment target company and stick to your investment plan.
The next post in the series shall be about the stocks fitting The GREAT Dividend Theory. Since we are getting high quality dividend paying companies at throwaway prices nowadays, compiling a fresh list of such stocks makes more sense now than ever.