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Market corrections often trigger panic among investors, but seasoned players see them as opportunities. When stock prices plummet, many investors rush to buy high-quality stocks at a discount, believing in their long-term potential. But what exactly makes certain stocks stand out during downturns?The answer lies in trust and fundamentals. Some investors rely on strong financials, visionary leadership, and robust management when selecting stocks. Others gravitate toward legacy brands that have consistently weathered market turbulence.Take the Tata Group, for example. If any Tata stock were to drop 60% from its recent price, investors would likely seize the opportunity—not just because of valuations, but because of the brand’s reputation and proven resilience. Millions trust Tata, believing that, over time, its stocks will rebound and generate strong returns.As Warren Buffett wisely said: "Only buy something that you’d be perfectly happy to hold if the market shut down for ten years."For investors, market corrections aren’t just downturns—they’re windows of opportunity.Introducing quality factor In the dynamic world of investing, quality is a crucial factor that helps investors identify companies with robust business models, efficient management, sustainable profitability, and strong cash generation. At Share.Market, our research team employs a data-driven approach to score quality by analyzing key financial metrics that reveal a company’s fundamental strength.Key metrics for evaluating qualityThe Quality Factor serves as a critical metric in evaluating a company's overall performance, encompassing operational efficiency, earnings stability, balance sheet strength, and cash flow generation.Profitability and Margin Ratios - provide insight into operational efficiency.Leverage Ratios - assess financial stability by evaluating balance sheet resilience.Accrual Estimation - plays a key role in analyzing cash flow generation, as financial statements are prepared on an accrual basis.Earnings Stability - offers a long-term, pan-cycle perspective on a company’s financial health.A well-rounded analysis of these factors enables investors to make informed decisions and assess a company's ability to sustain growth across economic cycles.Why quality matters in investingInvesting in high-quality companies with strong fundamentals can lead to superior risk-adjusted returns over time. These businesses tend to be more resilient during market downturns, have a sustainable competitive advantage, and generate consistent cash flows, making them attractive to long-term investors.At Share.Market, our proprietary scoring mechanism leverages these financial metrics to help investors make data-backed decisions. By focusing on quality as a key investment factor, we help investors to build strong and resilient portfolios in an ever-changing market.Evaluating quality factor historicallyWe explored the impact of “Quality Factor” on portfolio performance using Nifty 500 stocks. Our analysis spans data from January 31, 2012, to February 25, 2025, grouping stocks into five quality-based categories (Q1–Q5) of 100 stocks each, with Q1 representing high-quality stocks and Q5 low-quality stocks. We assessed each group’s performance through four key metrics: NAV Returns, Risk-Adjusted Returns, Maximum Drawdowns, and Days to Recover. NAV returnsThis metric represents the overall return of each quintile over a specified time period, helping to assess the growth and profitability of each quality group.Looking at the performance of different quality-based quintiles over the last 12 years, Q1 (high quality stocks) has significantly outperformed all other groups. 118780469Here’s a breakdown of how ₹100 invested in each fund since 2012 would look today:If you had invested ₹100 in each fund in 2012, today the fund with high quality stocks (Q1) would be worth ₹1,022, while the fund with low quality stocks (Q5) would have grown to ₹302. In comparison, if you had invested in the benchmark itself, it would have increased to ₹579 today.This analysis shows that high-quality stocks (Q1) have delivered significantly higher returns than other groups and the benchmark, offering exceptional growth potential for investors. The return difference demonstrates how quality investing can outperform other strategies, especially over the long term.Risk adjusted returnsThis metric adjusts each quintile's return relative to the risk taken. When we examine the risk adjusted returns between the quintiles, Q1 has consistently given higher risk adjusted returns compared to Q5. This tells us that high quality stocks not only give higher returns in absolute terms, but they also deliver better returns per unit of risk taken. 118780496Maximum drawdowns and Recovery Time: A key differentiatorMaximum drawdown measures the largest percentage decline from a stock’s highest quality to its lowest point, while the recovery period indicates how long it takes to bounce back to previous peaks.Between 2012 and 2025, the market faced multiple downturns, including the COVID-19 crash. Interestingly, while both high-quality (Q1) and low-quality (Q5) stocks experienced similar drawdowns—Q1 at -20.30% and Q5 at -19.70%—the crucial difference lay in their recovery times. 118780515Q1 stocks, backed by strong fundamentals, rebounded in just 148 days, while Q5 stocks, being more volatile and fundamentally weaker, took a staggering 958 days to recover. The stark contrast in recovery time highlights why quality investing matters. High-quality stocks may undergo sharp corrections, but their resilience allows them to recover swiftly, minimizing long-term risk and enhancing portfolio stability.This trend reinforces the importance of selecting stocks with robust fundamentals. Investors who prioritize quality can navigate market downturns more effectively, ensuring stronger long-term performance with reduced exposure to prolonged downturns.ConclusionBased on our study, Q1 stocks (high-quality stocks) have delivered significantly higher returns compared to Q5 (low-quality stocks). We also observed that Q1 stocks experienced lower drawdowns and recovered faster than lower-quality stocks. For investors looking to optimize their portfolio performance, quality stocks offer substantial benefits. By focusing on companies with strong fundamentals and consistent performance, investors can potentially maximize returns while mitigating risk. High-quality stocks have historically demonstrated higher returns and greater resilience, making them a valuable component of a diversified investment strategy.(The article is attributed to Sujit Modi, CIO of Share.Market)(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)

“There is still a lot of ambiguity around tariffs and in what shape and form they are going to be implemented. Sectors which have high levels of exports to US like Auto ancillaries, Pharma can get impacted,” says Sachin Bajaj, CIO, Axis Max Life Insurance.In an interview with ETMarkets, Bajaj said: “In general, if because of trade tariffs, global growth slows down, India’s growth projections will also be impacted negatively,” Edited excerpts: What a volatile February we have seen amid trade war fears and the selling by FIIs in Indian markets. What are your views?Indeed, February has seen significant volatility. Uncertainty looms over how US policy directions will unfold, and countries such as India, Thailand and China could be amongst the worst affected by reciprocal tariffs.While reciprocal tariffs remain a looming threat, their actual execution and impact are yet to be fully realized. In addition to global influences, domestic factors such as weak earnings, and high valuations have also contributed to the decline in Indian equities. Trade war fears are real – what is the kind of impact you foresee on specific sectors as well as markets in general? There is still a lot of ambiguity around tariffs and in what shape and form they are going to be implemented. Sectors which have a high level of exports to the US like Auto ancillaries, Pharma can get impacted.In general, if because of trade tariffs, global growth slows down, India’s growth projections will also be impacted negatively. On the positive side, tariffs will strengthen the argument of “China + 1” supply chain which will benefit India in the medium to longer run. What about earnings? Do you see an earnings recovery in CY25? The earnings growth for NIFTY has been slow, with a 4% YoY PAT growth for nine months FY25 and 5% in the December’24 quarter.However, growth is expected to pick up from the Q1 next fiscal due to base effect from the previous year, increased Government spending and consumption boost due to personal tax benefits.We expect earnings to recover to a low teen growth over FY25-26.Small & midcaps are in a bear market or probably trading around that. How should one play this theme? Do you see more pain? The small and mid-cap sectors had experienced significant overvaluation, which is currently undergoing a correction phase. Certain market segments still have valuations as compared to their fundamentals, which mean that further declines are possible.Nevertheless, this correction provides an opportunity for long-term investors to begin accumulating stocks.Where are the pockets of opportunities for investors this year? Currently, we favour large-cap stocks over mid and small-cap stocks. Some of the sectors where we believe pocket of opportunities are emerging are large Private sector banks and NBFCs, Life Insurance, Utilities, FMCG, T&D value chain and beneficiaries of low-ticket consumer spending.There are a lot of stocks that trade at a discount of 20-50% from their respective highs. How should one pick those stocks – what should be the ideal criteria?Many of the stocks which are down sharply from their respective highs are also the ones which went up sharply last year. Valuations have run ahead of fundamentals, which is now correcting.One should be looking at companies with strong balance sheet, robust cash flows and earnings visibility. For long-term investors, volatile markets are good times to pick up fundamentally strong businesses at attractive investors.SIPs clock Rs 26K for the second month in a row but if market momentum tapers – do you see a possibility of tapering of SIP flows as well?Slight cautiousness is already visible in SIPs. Active SIP accounts in direct plan mutual fund schemes witnessed a decline in January. However, we do not expect a sharp decline in SIPs inflows.What about Gold & Silver investing in 2025? We saw Gold ETFs flows seeing a steady rise in the past few months.Gold has delivered strong returns over the past year. During times of global uncertainty, investors usually prefer Gold as a safe investment. If the outlook for the global economy and geo-politics remains uncertain then precious commodities like Gold and Silver will do well.(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)