Fund managers say the latest correction will test equity investors' patience. "Some investors might want to take money off the table. Also, the new tax on dividends and long-term gains could impact incremental flows. We have to be prepared for redemption pressure. This could limit our capacity to buy aggressively as in the past," said another fund manager.
Despite the sharp correction, investment experts say valuations have still not entered attractive zone.
"Valuations had become expensive after sharp gains in January. Markets needed reasons to correct which the Budget's tax proposals provided along with the global rout. It's not the time to deploy all the cash in hand. Selective stock picking is always there but I feel Nifty can correct eight to 10 per cent more from here," said a chief investment officer (CIO) of a large fund house.
Among the top stocks which have been on the buying radar in current correction include, ICICI Bank, Larsen & Toubro, Tata Motors, Axis Bank and Mahindra & Mahindra. Some of the fund managers have also taken bets on cracking pharma stocks like Sun Pharmaceutical and Dr. Reddy.
Fund managers say investors should wait for the markets to settle before making huge lump sum investments. According to them, this is not the time to go overboard on equities if investment horizon is less than three years.