- July 28, 2022
- Posted by: Ramkumar
- Category: Posts
Does Buying in Dips Investing Strategy Work
Since #centralbanks globally started to increase #interestrates to reduce rising #inflation, global #techstocks took a severe hit. In India, the IT sector had the most impact despite the fact we are in services and not software. The rationale was that tech stocks were overpriced and traded at a higher # valuation before the rate hikes. Thus there was a correction in the prices, and analysts observed that these stocks were a good buy after the price fall.
This logic is flawed, especially after Accenture posted its Q3 results yesterday. Moreover, USD has strengthened against other currencies after the fed rate hikes. 𝗧𝗵𝘂𝘀, 𝗳𝗶𝗿𝗺𝘀 𝘁𝗵𝗮𝘁 𝗿𝗲𝗹𝘆 𝗼𝗻 𝗶𝗺𝗽𝗼𝗿𝘁𝘀 𝘄𝗶𝗹𝗹 𝘀𝗲𝗲 𝗮 𝗺𝗮𝗿𝗴𝗶𝗻 𝗰𝗼𝗻𝘁𝗿𝗮𝗰𝘁𝗶𝗼𝗻 𝗱𝘂𝗲 𝘁𝗼 𝗿𝗶𝘀𝗶𝗻𝗴 𝗨𝗦𝗗, 𝗮𝗻𝗱 𝗨𝗦 𝗵𝗲𝗮𝗱𝗾𝘂𝗮𝗿𝘁𝗲𝗿𝗲𝗱 𝗳𝗶𝗿𝗺𝘀 𝘁𝗵𝗮𝘁 𝗵𝗮𝘃𝗲 𝗮 𝗽𝗿𝗲𝘀𝗲𝗻𝗰𝗲 𝗶𝗻 𝗼𝘁𝗵𝗲𝗿 𝗰𝗼𝘂𝗻𝘁𝗿𝗶𝗲𝘀 𝘄𝗶𝗹𝗹 𝘀𝗲𝗲 𝗮 𝗱𝗲𝗰𝗹𝗶𝗻𝗲 𝗶𝗻 𝗺𝗮𝗿𝗴𝗶𝗻𝘀 𝗱𝘂𝗲 𝘁𝗼 𝗿𝗶𝘀𝗶𝗻𝗴 𝗳𝗼𝗿𝗲𝘅 𝗹𝗼𝘀𝘀𝗲𝘀.
Thus, the EPS forecast for most firms, including oil & gas companies, should decline in the next quarter leading to a further fall in equity prices.
When earnings in growth stocks decline, it implies that growth has fallen, leading to a higher #unemploymentrate globally. Thus, at a particular point, the fed has to stop raising interest rates to handle recessionary worries. However, that time is too late because 𝐟𝐞𝐝 𝐫𝐚𝐭𝐞 𝐡𝐢𝐤𝐞𝐬 𝐚𝐫𝐞 𝐚 𝐛𝐥𝐮𝐝𝐠𝐞𝐨𝐧, 𝐧𝐨𝐭 𝐚 𝐬𝐜𝐚𝐥𝐩𝐞𝐥.
Thus, in my view, this blunt way of taming inflation to l𝙤𝙬𝙚𝙧 𝙨𝙪𝙥𝙥𝙡𝙮 𝙘𝙤𝙨𝙩𝙨 𝙖𝙣𝙙 𝙧𝙚𝙙𝙪𝙘𝙚 𝙥𝙧𝙞𝙘𝙚𝙨 𝙬𝙞𝙡𝙡 𝙡𝙚𝙖𝙙 𝙩𝙤 𝙡𝙤𝙬𝙚𝙧𝙞𝙣𝙜 𝙙𝙚𝙢𝙖𝙣𝙙 and the global economy to a recession.
For all the stock pickers, this fall in equity prices is not a correction and thus, buying in dips strategy will not work.