How to make money if the market enters a lengthy consolidation phase

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MUMBAI: After over 135 per cent gains since hitting their three-year lows in March 2020, domestic benchmark equity indices are sitting close to their record highs.

The sheer speed of the gains have made several investors cagey over the sustainability of these gains with many who missed out on the rally waiting for a correction to enter. The benchmark indices are quoting record high valuations and with concerns over global growth returning, doubts over the sustainability are more tangible than at any time in the past nine months.

Atul Suri, Founder and Chief Executive Officer at Marathon Trends PMS, said if history is any guide, then the spring-like gains in the equity market since the Covid crash are a harbinger of a lengthy phase of consolidation in the coming future.

“We cannot sustain the market at these levels, we need to consolidate. The market needs to take a breather,” Suri said in a YouTube video.

Suri, however, said a consolidation phase such as those since the burst of the IT bubble in early 2000s or post the Global Financial Crisis also offer opportunities for wealth creation. Suri, who was mentored by Big Bull Rakesh Jhunjhunwala in the early part of his investment career, found that there is a common thread among stocks that create wealth even when the broader market enters a lengthy consolidation phase.

“The common qualities that all these winners had in a sideways market were companies that continued to deliver good earnings. For them, the consolidation doesn’t matter,” Suri said.

He said major gainers of the bull market, where there were only narratives with little substance, tend to be the big losers during the consolidation phase of the market.

Suri feels the current portfolio of Marathon Trends that include names like Honeywell Automation, Deepak Nitrite, Atul and the HDFC twins, among others, is displaying consistent earnings growth and, therefore, should be able to outperform if a consolidation ensues for the broader market.