Which investment strategy to follow now? Buy on dips or lump sum

Market


NEW DELHI: Indian equity markets have been volatile in the last one year, however, the recent recovery has brought them to near all-time highs. Further, mid-cap and small-cap stocks continue to outperform large-caps as overall stability has helped investor sentiment.

Currently, the Nifty 50 Index and Nifty Midcap 100 Index are less than 5% away from their respective all-time highs seen in October 2021. However, the small cap index is still about 20% away from its all-time high.

Meanwhile, on the economic front, data has been mixed in the last one month with US retail inflation coming in higher than market expectations. The same led to a rise in bond yields and a sharp fall in global markets on expectations of a substantial rate hike by the US Federal Reserve. The Fed is expected to hike rates by 75 bps in its 21 September policy meeting.

Given all these factors, ICICI Direct Research Desk in a note has suggested a way for navigating the market in these times.

“With markets recovering almost all their losses and trading back at around all-time highs, it is better to adopt a buy on dips allocation strategy instead of lum psum at current levels,“ ICICI Securities said in a note.

The brokage added that, domestically, with a capex cycle revival on the anvil (public + private) coupled with strong consumer demand across most categories in a post covid-19 environment (passenger vehicles, retail, etc), “we remain constructive on the overall markets”.

Indian equity markets have continued to outperform their global counterparts as investors expect better earnings prospects with commodity prices cooling off, and better growth prospects compared to other countries.

A sharp fall in global commodity prices, particularly industrial and farm commodities, has helped lift otherwise weak investor sentiments. Crude oil prices have corrected to less than $95/barrel from a high of above $120/barrel.

Foreign portfolio investors (FPIs), who were consistent net sellers, have turned net buyers since July 2022. Domestic investors, particularly mutual funds, have been major buyers during the same time absorbing the FPI sell-off.

According to ICICI Direct Research Desk, despite the spillover effect of global geopolitical tensions and financial market volatility, the Indian economy has stayed on the path of improvement and economic revival.

“The movement of various high frequency indicators reiterates the momentum in the domestic economy. The economic cycle now has more legs (manufacturing revival, capex, global exports) vs. the earlier consumption led cycle,“ it said.

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