August Pulse - Sage Views - Costs of Bottom Fishing in the Market

"The markets are like a weather; you may not like it but you have to bear it" - Rakesh Jhunjhunwala

Dear Investor,

Indian equities declined in July’25 (Nifty down 2.9% mom; 5.5% below its September’24 all-time high). FIIs sold heavily during the month, completely reversing four successive months of inflows. DII flows remained strong at Rs 609bn in July. Within Nifty, most sectors declined; IT, Energy and Telecom lost the most. Both Small Cap and Mid Cap indices underperformed Nifty 50 on mom basis.

Sector-wise, Pharma & Healthcare (+3%), FMCG (2%%) were the only sectors in green; IT (-9.1%), Realty (-7.3%), Media (-7.3%) were the worst performing sectors while all others ended in red.

Market Outlook: While POTUS has suddenly realized that India deserves a 25% tariff over and above the already levied 25% tariff, with more tariffs to follow, this sounds more like a bullying move to get their demands fulfilled as part of the trade deal. Uncertainty has increased in August and might be here to stay until we come to a middle ground with the White House officials in the last week of August (hopefully). While geopolitics is at play and all diplomats seem to be having a busy month until we have a trade deal sooner than later. It is important for investors to understand that trade deals take time, our last trade deal with UK took 3 years; it doesn’t look like we have so much time to wait with US!

Valuations have cooled down a bit however they still remain a tad higher than the long term average - Nifty’s 12-month forward P/E, traded at 21.1x, was marginally above its LTA of 20.7x, but it was down 13% from the Sep’24 high. We believe markets to be in a consolidation phase for the rest of 2025 as we see various geopolitical and macroeconomic factors stabilize over a period of next 2 quarters.

What should investors do?

Like Rakesh Jhunjhunwala once said, “The markets are like a weather; you may not like it but you have to bear it”. The only thing investors can do is take advantage of the volatility and keep adding on dips. What investors should certainly avoid is bottom fishing, we have seen multiple times in the last decade where investors tried to predict the bottom of the market while market saw corrections and they ended up missing out on the opportunity.

What is Bottom fishing?

Bottom fishing refers to the strategy of buying stocks (or indices) that have experienced significant price declines, on the expectation that they are undervalued and will rebound. While the idea of “buying cheap” can sound appealing, in practice this approach carries serious risks — especially in the Indian market context.

If we define bottom fishing as “buying a stock after a major fall in the hope it will bounce back to old highs,” the probability of success for an average Indian retail investor is quite low — historically in the 20–30% range, and in small/midcaps it drops to below 15%. I have personally experienced failure in bottom fishing strategy in my own portfolio and also seen a lot of investors failing to time the markets for which the costs were as high as some investors never even entered the markets and missed an entire bull cycle (>5000 points on the Nifty to be precise) as they kept thinking that markets will correct.

The bottom line is to avoid bottom fishing. A 1-2% points here and there won’t matter much in the long term.

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Wishing all of you a Happy Independence Day! 🇮🇳

Happy Investing!

Warm Regards,

Nikhil Gupta

www.sagecapital.in