Every bull market leaves its imprint behind. Stocks that rose sharply in a bull run tend to fall doubly quick afterwards. But, what about those stocks that hardly participated in the bull run? They make an even stronger impression. There will always be parts of the bull market which are very attractively valued. These would be the ignored parts of the bull run. People don’t see merit in them and are hardly interested in them. When markets fall, and sharply too, these parts tend to trade even cheaper. You may wonder why they are being punished when they were never rewarded in the first place. This is a tough question that has no simple answers. But, let us marshal some home truths and try to make an opportunity out of the exercise.

Value investing usually has its most testing times when markets come off a peak. Stocks which are trading reasonably cheap in good times become even more cheap when markets correct. This is playing out now. The trigger for such a sharp fall in valuations even in the not-so-expensive stocks is herd mentality. Everybody thinks that if the stocks which performed so well in the recent past fall sharply, those which didn’t do well in good times deserve to be brutally punished. This perverse logic tends to be proven very wrong in the subsequent years. Defensives like pharma and FMCG were punished by this very logic in 2009-10 and came back to become the giant killers of the market. Who will even believe that these stocks traded at very attractive valuations just after the 2008 bull run?

The current market scenario is going to throw up the most unlikely sectoral winners of the future. Investors buying what did well in the recent years must study what happened in past cycles. If you know how such behaviour has been punished brutally, you will show the required circumspection, bring discretion to future choices, and focus on tomorrow. Tomorrow will be different.

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