The average daily absolute variance in SENSEX in recent times is on higher side giving ample trading opportunities for holding period of 1 to 5 days. The below chart unveils the kind of volatility in SENSEX for the 37 trading days between 1st April 2020 to 29th May 2020.
During the 37 trading sessions the index movement remained less than 1% only on 6 counts. In 7 sessions the movement was more than 3% while 8 sessions saw movement of 2 -3%. The average volatility of SENSEX during the two calendar months stood at 2.07%
Many of the 50 stocks constituting NIFTY witnessed frequent movements beyond 3 to 4% in a single day or rallies of 7 -10% in really short spans of 3 to 4 trading days. Munoth Financial delivered a return (after all expenses) between 14 & 16% for all its trading portfolio clients against return of 10% delivered by SENSEX for 2 months ending May 31st, 2020.
This opportunity of quick churning and frequent rotation of investments is expected to continue in near future. Investors holding stocks can sell on spurts to cover again at lower rates. Opportunities for fresh investments knock doors after every 7 to 10 sessions. The mantra is to buy on lows, wait and sell when one gets a return of anywhere between 2 - 5%. The blue chip stocks themselves are giving many opportunities and so there is not much incentive to look for Group B shares and increase risks.
Our advice is simple.
Hold cash. Invest at lows. Sell on small returns. Hold cash. wait for next opportunity...
Update on our long term investment recommendations in our blog What shares to buy?
The 3 out of 31 stocks which met our buy price targets have performed well. Both HDFC & HDFC bank has risen 15% while Bajaj Finance has increased by 20%.
Our buy target price is not yet attained for the rest of the stocks.
While the near term market outlook is uncertain, volatility is likely to continue and hence the chance of making frequent small gains this month.