Stocks to Buy and Avoid in this Market Correction

Mar 11, 2020

Tanushree Banerjee, Editor, The 5 Minute Wrapup

If you can call something a perfect storm, then this might be it.

The world including India is fighting the coronavirus. A war over oil has broken out. Amidst all this, we have our own banking troubles back home.

The stock markets are bearing the brunt of all this. Since Sensex hit an all time closing high on 17 Jan 2020, it is down by 15%.

Naturally, there is panic amongst most investors. I won't be surprised if the thought of selling all your stocks hasn't crossed most retail investors mind yet.

What should you do in such a scenario, dear reader?

Like most things in life, the solution to most problems lies in the simplest of things.

For the coronavirus, most doctors have recommended following the most basic steps. Wash your hands often with soap and water. Cover your face if you have a cough or cold. Cook your food well.

We are anyways supposed to do most of these things right? But do we follow them regular basis?

The same goes with your investing too. One needs to just follow the basics. But we rarely do. I suggest now is the time to have a long hard look at your portfolio. Ask the following simple question and segregate your stocks into the following three types...

Will your business survive if there is a prolonged slowdown due to the coronavirus?

Type 1: Yes

Type 2: No

Type 3: Maybe

Now, if you have Type 3 stocks and they don't make up most of your portfolio, you can leave them as it is.

The main concern is Type 2 stocks. These are the potential virus that can damage your portfolio. It's better if you shift from Type 2 to Type 1. In the long run, you will survive this market and do well.

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Now, coming on to Type 1 stock. How do you know which is a Type 1 stock? How do you know if your stock will survive if there is a slowdown?

In the Indian stock market, here's how I would define a Type 1 stock or Business...

To summarize it, these are stocks that will be a part of a long-term megatrend.

In a new India that I am sure will come out strong post the coronavirus impact, these are the stock most likely to do well.

If you correctly identify such Type 1 stocks, you should do very well in the long-run.

In fact, with the current market correction, we might find a lot of opportunities in such Type 1 stocks. An opportunity I am closely keeping a close watch on for my StockSelect subscribers.

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Chart of The Day

It was certainly a black Monday for the Indian stock market. In absolute terms, Sensex saw its biggest single day fall on 9 March 2020.

In fact, this year has seen two of the biggest single day falls in the Indian stock market history. The only time we had seen such a fall was in 2008. Back then, the BSE Sensex had fallen by more than 50% in a year.

Is It 2008 All Over Again in the Stock Markets?

Will we see something similar in 2020?

Trying to predict the direction in such cases is a futile exercise.

As I always say, retail investors would do well to focus on the fundamentals of individual stocks. In fact, such uncertain times gives the best opportunity to look at quality stocks.

Always remember, what has changed is the price of the business but not the value.

Warm regards,

Tanushree Banerjee
Tanushree Banerjee
Editor, The 5 Minute WrapUp
Equitymaster Agora Research Private Limited (Research Analyst)

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1 Responses to "Stocks to Buy and Avoid in this Market Correction"

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Mar 12, 2020

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