We have seen steep correction in small and mid cap index during last 3 weeks. Recent fall in stock prices with significant correction in major indices got intensified mainly due to 2 reasons, Trump being elected as US President on global front and Demonetization of Rs. 500 and Rs. 1000 note locally. Both triggered a major sell off in Indian equity market. Demonetization measures may have a short-term impact on industries which are majorly dependent on cash transactions. Industries such as construction, real estate, micro finance, hotel businesses, self-owned businesses, jewellery etc will have a major impact. However, we have witnessed steep fall in stock prices during last Friday as well as yesterday, in most of the small and mid cap companies including the companies which are part of our Wealth-Builder portfolio.
If we look at 2015 and 2016, we find stock market extremely volatile as major indices - Sensex and Nifty made all time high in March last year, later corrected by almost 25% over period of next 12 months followed by sharp recovery of more than 26% during last 8 months from recent lows of Feb'16 and is now again going through correction with continuous selling by FIIs.
Recent sharp fall in stock prices is more or less similar to the correction which we experienced in Jan and Feb 2016 this year, it created panic situation for many new investors without any cues and put them on back foot when it comes to investing in equities. In the month of Feb'16, many investors were expecting further fall in stock market with indices testing new lows and hence remained on sidelines. However post union budget, we have witnessed strong rally across all broader indices as FII turned to be net buyers in the month of March and later in following months considering positive developments like Union budget with focus on fiscal discipline, change in Fed views regarding US rate hike, stability in commodity prices and normal monsoon and passage of GST bill which helped major indices, Sensex and Nifty to rise by more than 26% from their recent lows made in last week of Feb this year.
If we look at recent situation, FIIs turned net sellers in the month of October and November. FIIs have sold off equities equities over 19,700 crores in October and November so far. FIIs selling Indian equities may continue in coming weeks but we do not expect any steep fall in stock market as it will be supported by domestic Institution and fund houses turning them to net buyers.
There is a possibility that markets may drift lower during next few weeks however downside from current levels seems to be limted. Its always wise to avoid timing the market and invest in equities in a systematic way keeping a long term horizon. Moreover, these type of corrections give great entry point to long term investors as they get an opportunity to add high quality companies with strong fundamentals at discounted price.
High quality companies reporting 20-30% + annualized growth can deliver exceptional returns for the shareholders in long term. In case you have not yet started building a portfolio of high quality and high growth stocks for long term wealth creation, please find below the Wealth-Builder portfolio allocation for your reference.
Since inception, our Wealth-Builder portfolio has outperformed Nifty and Sensex by wide margin. Since 1st Jan 2013, Nifty has given returns of 34.5%, Sensex returns is 32.7% where as our Wealth-Builder portfolio has given returns of 242% to our members.
In terms of performance, 8 top performer stocks out of 16 of Wealth-Builder portfolio have given returns in the range of 50% to 730% since 1st Jan'13 that too when couple of stocks out of 16 were added in portfolio during last year and this year. Moreover, 10 stocks out of 16 have made 52 week high / all time high recently. We continue to hold these stocks and add more during ongoing correction as we believe these companies are registering good growth every quarter and doing all the right things to continue delivering robust top line and bottom line with strong operating margins.
There were few laggards also which have not performed up to our expectations and we exited these stocks and allocated the available funds to other good investment opportunities to ensure that Wealth-Builder portfolio continue to outperforms major indices by wide margin.
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