What is Bottom fishing?

The term bottom fishing is generally applied to the practice of buying what you think is an undervalued stock, especially in a period when the markets are bearish. The logic behind bottom fishing is that the prices of stocks sometimes fall much below their actual value in a dismal market situation which makes them attractive. Investors purchase these stocks at cheap rates with the expectation that when the markets improve, the stocks will bounce back and become a profit-making investment. Bottom fishing is, however, fraught with risk as the markets could always move contrary to expectations.
There are two crucial aspects determining the profitability of bottom fishing —

• Price
• Time

Price - With regard to price, it is largely felt that the market has bottomed out and you may currently get stocks at the cheapest rates.

Time - However, there is no guarantee as to when the markets will move up or dip further. So if you’re looking at making quick profits in the near future, bottom fishing may not necessarily come to your aid.

Which sectors appear attractive in the current downturn?

Bottom fishing by retail investors has been mostly concentrated around certain stocks in sectors such as banking, capital goods, realty, media and logistics.

Analysts advise investors to take exposure in sectors that are more focused on the domestic markets and are right now trading around their 52-week low on the bourses.

In fact, it is not just retail investors who are resorting to bottom fishing in the current market conditions. Even promoters of medium and small-sized companies are looking at bottom fishing as a means to increase their holdings in the company.