Online stockbroking firm Zeroda’s co-founder Nithin Kamath shared his thoughts on one of the most burning questions for retail investors in the Indian bourses: to buy in the current dip or not.
In a series of tweets, Kamath informed that he has been inundated with a number of messages asking him if one should exit fixed deposits (FDs), debt funds, and buy the dip.
To all these questions, Kamath has a simple answer: “Not every dip is like March 2020 where the bounce back is immediate. This time around, if things get worse, it may take a long time to recover. Nobody knows.”
Kamath’s comments come at a time when Indian shares suffered deep losses over the past week, erasing all the gains clocked this year, as prospects of tighter US monetary policy and tensions between the West and Russia over Ukraine triggered heavy foreign selling.
Explaining further, the young billionaire entrepreneur stated if stocks are down 30-40%+, it could be that something has fundamentally changed, even if there is no news about it out there. “Markets are super-efficient in the world we live in today, if something seems too good to be true, it usually is,” he added.
Further, when investing, the idea is to buy a stock that is strong and not which is weak, he tweeted. Elaborating on the point he added, “Assume there are two stocks, A & B both at Rs 100. Say A drops to Rs 50 & B remains at Rs 100, the odds of B going up is much higher. Sounds counterintuitive, but that is how markets work,” adding, “We sell winners and average down on losers—this is called disposition bias. This strategy can go horribly wrong. Ask the lakhs of investors who kept buying Yes Bank on its way down from Rs 400 to Rs 10 by exiting all their profitable investments.”
Moreover, he also warned that while the stories of people creating wealth with concentrated bets in one or two stocks sound nice, the odds of that happening is one in a million.
Also Read: Market volatility on Budget day: Here’s what Zerodha’s Nikhil Kamath says
While cautioning the investors, Kamath highlighted that the best way to invest for the long run is to diversify broadly and have enough cash equivalents for emergencies.
On Thursday, Indian shares ended at four-week lows on Thursday, as IT stocks lost ground for an eighth straight session, tracking a risk-off mood in global markets after the US Federal Reserve flagged likely rate hikes in March.
The blue-chip NSE Nifty 50 index closed 0.97% lower at 17,110.15, while the S&P BSE Sensex fell 1% to 57,276.94. Both indexes fell as much as 2% on Thursday but recovered on firmer bank stocks amid the expiry of monthly derivatives contracts.
The top three losers on the Nifty 50 were technology stocks, leading to its IT sub-index shedding 3.5% to a five-month low and extending 2022 losses to 13.5%.
However, Vinod Nair, head of research at Geojit Financial Services said “The upcoming Budget session will be positive for the economy, no doubt, but we’ll have to see if it can overturn our markets.” To be sure, the Union Budget for the financial year 2022-2023 is set to be presented by Finance Minister Nirmala Sitharaman on February 1, at 11 am.
Earlier today, Nithin’s younger brother Nikhil Kamath analysed what the sentiments of retailers, and brokers trading on Indian bourses during and after the government’s Budget will be like.” Historically pre-budget month has a positive bias whereas post-budget month has a negative bias,” he stated in a series of tweets on pre-and post-Budget market movement.