Stocks to buy: Stocks Hemang Jani wants to buy or add on every dip

In yesterday’s market, a lot of midcap and smallcap stocks got completely chopped. It is always a concern when stocks which are patronised by retail or HNI investors start falling so hard.
We have seen such a big rally in the market and we have to reckon that there have not been any meaningful corrections on the way. Typically in a bull market backed by such a strong global liquidity and the earnings upgrade cycle, one may have to go through a corrective phase and it may be for multiple reasons. The retail participation is very strong in the midcap and small cap sectors. Sometimes because of the high beta nature and the kind of liquidity or depth or the lack of it, there might be some degree of surprise in the midcap and smallcap stocks.

But the two most important factors for the markets are the Fed stance on liquidity and the earnings season. The rest of the factors whether it is an increase in the number of Covid cases or IPO, etc, we should not really get perturbed because the overall trajectory of the market looks quite positive to us.

What did you tell your clients — hold, buy or respect the stop losses and get out?
Typically when the clients are more active and are looking for short-term trading, it definitely makes sense to have some basic discipline on the kind of leverage you take on the stop losses etc. So, that is definitely one thing which we convey. There are a lot of investors who are typically not leveraged players in the market and we tell them to have 10-15% kind of a buffer and add the stocks which present an opportunity on corrections.

For example, we feel that the IT sector has not really performed and the overall earnings for Q4 would be extremely good. So we are telling them to add to IT and some of the other new ideas that we are coming out with. We should not expect that there would not be any nasty surprises or corrections in the market but if the overall directional call is clear and there is conviction on the earnings, one should go with the market.

Which are two stocks where you should either be a buyer or double up your positions on every decline?
One of the high conviction ideas is Hindalco. In the metal sector, where the Q3 earnings have been exceptionally strong, the pricing environment has been good and on top of that, Vedanta is looking to buy additional stake at a higher price. So a large part of the money could move into Hindalco from the investors who may want to go for that open offer. Hindalco is a stock which is extremely well placed and we should definitely look at adding that.

Other than that, IT as a sector in the last two months, has not gone anywhere despite the fact that the earning trajectory looks pretty good and we have had some positive news flows in terms of how the traction is building on IT spend. Companies like Infosys, HCL Tech and even some of the midcap companies like MindTree or Persistent Systems are the ones where we would like to participate in ahead of the earnings season.