Stock market correction offers value picks for long-term investors

The stock markets have been through a correction over the last couple of months due to concerns on the high inflation rate, monetary policy tightening and impact on the growth of industrial output mainly in the capital-intensive segments। The markets had a technical pull-back last week as some concerns eased on the global and domestic fronts, and also in anticipation of some positive announcements in the forthcoming Union Budget.

However, caution is advised in the markets as it is close to the Union Budget announcement. As in the past, high volatility is expected in the markets in anticipation of the Budget, and as a reaction to the announcements made. Although there was a technical pull-back rally in the markets last week, many blue-chip stocks are still available at attractive levels for investors looking at a long term.

The economy is expected to post a healthy growth rate of over 8.5 percent in the current fiscal, and the expectations are it will continue to maintain the growth rate in the next fiscal year as well despite the monetary policy tightening. These are some strategies for various categories of investors:

Investors planning to invest now

The stock markets have corrected over the last few weeks and are down by almost 12 percent from their peak levels. Many blue-chip stocks are trading at 20 to 30 percent below their highs, and therefore offer good investment opportunities. However, you should not take investment decisions in a hurry. It is advisable to follow the stock markets for some time and do some homework to identify stocks and ideal price levels before taking investment decisions.

Since the markets are quite volatile, it is advisable to accumulate selected stocks in smaller lots at regular intervals in order to get a good average entry price. You should avoid getting sentimental in the stock markets and define profit/loss targets for your equity positions. You should book profits or cut losses when the target is hit.

For long-term investors in the market

The general tendency of a long-term investor is to 'buy and forget' the equity investments. In fact, some investors do not even track the price movements and quarterly results of their stocks. It is important to note the investment outlooks of stocks keep changing with time based on the market conditions as well as the business performance.

Therefore, investors should track the news and developments related to stocks, sectors and the overall market closely. Those who have invested in the markets with a long-term horizon (couple of years or more) should also look at the market trends and developments. Since the sentiment is bullish worldwide, it is advisable to maintain your current positions. However, a periodic review of the portfolio should be made from time to time, based on the current macroeconomic and business conditions, and quarterly results.

Investors should take the necessary steps to make the required adjustments in their portfolios based on the macroeconomic conditions and company results. Long-term investors who cannot track the markets and related developments regularly would be better off investing their money in equity mutual funds.