The clear reset in GDP growth expectations by the RBI, the Infosys results disappointment, rising attrition across Indian tech companies, and an imminent bump up in interest rates cooled off the market mood. Over an extended weekend, the markets have been given time to rethink how to reposition in keeping with the emerging scenario.

The anchoring to two years when every dip got bought into, and how the markets were rewarding those who showed high conviction to buy in dips, is probably needing a reset. But, that’s not what investors are readily willing to accept. So, more dips will get bought into aggressively until the markets start to see the technical futility of buying lower dips blindly. Technically, the markets are going to favour sellers in index stocks and test the patience of buyers in midcaps.

But, the real action space where a reset can have a dramatic impact is the small-cap space. Here, liquidity issues will persist raising the impact costs on both buying and selling. Rising trends turn the impact cost into returns and falling trends will turn impact costs into losses. What happens now will purely be a function of liquidity and market interest. If buying gets absorbed easily, we can see sideward markets. If we see relentless selling, the markets can buckle when the buying lets up even briefly.

Bottom-up investing is the way forward in times like these and buying what nobody wants to own will ensure we get to build our positions at a low impact cost to our desired position sizing. The need of the hour is clarity and intense focus.

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