5 Swing Stocks : In the Indian stock market, several blue-chip stocks have recently seen significant corrections. Hindustan Unilever, for instance, has dropped by about 20%, Nestlé by 20-25%, and DMart by 30%. Bajaj Finance has consolidated, showing little movement over four years, while Kotak Mahindra Bank has offered almost zero returns in the same timeframe. This raises an important question: Is now the right time to invest in these blue-chip companies and engage in swing trading?
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What Is Swing Trading?
Swing trading involves buying an asset at a specific entry point and exiting it when it reaches a predetermined target. For instance, consider the Nifty 50, which has dropped by around 10.5% from its peak. If it rises back to its earlier high, it offers an 11% gain. Here’s how swing trading works:
- Identify an entry point (e.g., when the index has fallen significantly).
- Set a clear exit target (e.g., an 11% rise).
- Manage your risk to ensure consistent gains.
Swing trading isn’t about random trades; it requires discipline, clear entry and exit points, and a focus on risk management.
Risk Management in Swing Trading
Effective risk management is key to successful swing trading. For example, if you invest ₹50 lakh at a 10% market correction and the market drops another 5%, you can strategically invest more to reduce your average loss. This approach helps you capture better gains when the market rebounds. Unlike small-cap trading, which often lacks clarity on exit strategies, swing trading in fundamentally strong assets allows for systematic risk management.
Why Is Now a Good Time for Swing Trading?
- Large-Cap Underperformance: Over the past few years, small- and mid-cap stocks have outperformed, leaving large caps relatively undervalued.
- Market Dynamics: Many blue-chip stocks are trading at discounts, providing an opportunity to enter at favorable levels.
Promising Swing Trading Candidates
1. Abbott India
- Why Abbott? The stock is trading at its 200-day moving average, a key indicator for swing traders. Its profits have compounded at 20% annually over three years, making it a strong candidate.
- Sector Insights: The pharmaceutical sector is rebounding, adding to its appeal.
2. Akzo Nobel (Paints Industry)
- Current Position: The stock is down about 20% from its peak.
- Fundamentals: Revenues have nearly doubled in four years, and profit growth is robust. With a low float and strong institutional holdings, it shows potential for a significant price increase.
3. Cholamandalam Investment and Finance
- Performance: The company has doubled its revenues and profits in two years.
- Opportunity: With a 20% correction from its peak, this stock offers a margin of safety for swing traders.
4. Hindustan Unilever (FMCG Sector)
- Market Position: The stock is down 20-25%, making it a potential bargain.
- Historical Trends: It often rewards investors who buy below its 200-day moving average with steady gains.
Additional Insights: Unlisted Opportunities
Companies in the unlisted space, such as Swiggy, also present interesting swing trading opportunities. Although riskier, these stocks can offer high rewards if their turnaround stories succeed. For example, Swiggy’s valuation has dropped from $10 billion to $4 billion, indicating a potential for growth if the company pivots successfully.
Key Takeaways for Swing Traders
- Focus on fundamentally strong assets with clear entry and exit points.
- Diversify your portfolio to include large-cap stocks, FMCG companies, and selective unlisted opportunities.
- Manage risk systematically to minimize losses during market corrections.
Swing trading offers a disciplined approach to capitalize on market fluctuations, especially during periods of large-cap underperformance. By identifying strong candidates and managing risk effectively, traders can make consistent gains in the market.