Contrarian Strategy(part-1)

"Contrarian strategy may not benefit you in current market"

(Nishanth Vasudevan)

History has it those investors who trade against the broad-market consensus - popularly known as contrarian calls have badly their share of fortunes. While perennial optimists maintain that contrarian calls will continue to be in vogue, the broader perception is that this time round it need not hold true.

The confusion is whether the latest fall in the markets presents an opportunity for an investor to take a contrarian call, given that the underlying market conditions have changed. There is consensus that the situation is not as conducive for equity investments as it was earlier, with global interest rates on a rise and the US economy facing a risk of recession and risk appetite of investors dwindling. Indian benchmark indices and broad market indices have fallen roughly 15 % from their peak in February, but still valuations remain at a premium to both emerging market equities and global markets.

Market observers caution investors against adopting the "against the tide" strategy blindly at this stage, especially when there is still some uncertainty over market direction.

Nitin Raheja, Chief Investment Officer of Dawnay Day, feels it would be fool-hardy to adopt the contrarian strategy just for the sake of it, as the market might be sending the correct signals ahead of an event.

Citing an example, he added, "If a particular sector is likely to face margin pressure, the market gets a feel of it much earlier. In this scenario, it would not be wise to go against the market.”