How to pick your stocks in a volatile market

The equity markets have surely been acting weird of late. The benchmark Sensex has fallen just about a percent over the last week though it had fallen 7 percent in the last month. And through that time, Sensex has been extremely volatile even on an intra day basis.

So how do you select stocks in such a scenario?

“Earnings visibility” is the term that Economic Times recommends. It basically says do not bet on high growth but high risk companies. Rather opt for safer bets which might give moderate returns but are not exposed to high risks due to steady earnings growth.

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ET gives two examples as well. One is the much talked of “consumption theme” where examples like Bajaj Electricals and Godrej Consumers come up. ET speaks of proponents of the consumption theme that talks in favour or rising disposable income and demand in the rural markets. It writes, “This group believes companies that would benefit from this trend could be the safe-picks in the current environment.”

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The second group speaks in favour of companies which can take fast decisions on the back of regulatory changes and take advantage of them meaningfully. For example, the promptness with which Yes Bank raised interest of savings account from 6 to 7 percent after it was freed. And the bank has gained substantially due to that.

In both the cases it is the earnings growth potential of the company that is highlighted and must become the basis of stock picking right now.