At a time when the Indian stock markets are experiencing heightened volatility amid record outflows by FPIs and the uncertainty around the US Presidential elections, fund managers are advising investors on a near-term strategy of booking profits in low-growth and high PE stocks and reinvesting in value stocks.

“Investors should not take any knee-jerk actions like reducing cash levels or suddenly creating a lot of cash by selling down their portfolio, said Kunal Bhakta, Co-Founder at First Water Capital Fund. He added that investors should follow a very calibrated approach to buy along the dip and not aggressively add.

Bhakta added, “It's all about relative value swaps - investors should consider switching from higher valuation stocks to lower valuation stocks (as these likely offer better value) if the valuation gap has widened or at least sustained. Else, there is no case for making any tweaks."

In October, FIIs have been on a selling spree and have sold shares worth Rs 85,000 crore. However, DIIs have been acting as a strong counterforce while buying shares worth Rs 1.07 lakh crore. Incidentally, the India VIX, which is looked upon as a barometer of near-term volatility, has jumped 17 percent in the last one week.

Another fund manager who manages Rs 350 crore in a PMS believes that good earnings no longer drive big gains, but bad earnings now lead to sharp declines. “Stocks are slaves of earnings, and so investors who previously chased growth should now start to prioritise value,” he said.

He added that one should not hold high PE stocks in slowing industries and focus on the top 3-5 market leaders in the sector. “Also watch out for stocks which have corporate governance issues,” he said.

In a similar context, Vinit Sambre, Head - Equities, DSP Mutual Fund, said that while for quite some time, the market was moving in an upward direction on the back of strong earnings growth, in September, the results for the quarter fell short of expectations, leading to earnings downgrades because of reduced government spending and slow consumption growth.

In the last week, the Nifty 50 has fallen 1.5 percent and the Sensex has fallen 1.62 percent. In the case of the Sensex, the 30-share benchmark is currently down more than 7,200 points when compared to its all-time high of 85,978 touched on September 27. On Monday, the Sensex had fallen nearly 1,500 points during intraday-day trading before partially recouping the losses to close lower by 942 points.

Siddharth Bhaiya, managing director and CIO of Aequitas Investment Managers suggests investors to be on the sidelines as the earnings season has not been great. So investors must wait for the valuations to correct, he added.