As the end of the financial year approaches, Indian share markets continue to trade deep in the red, with Nifty even slipping below the psychological support level of 17,000 this week. However, experts say that the current correction is an ideal time to accumulate stocks for the long-term at reasonable valuations, despite the geopolitical tensions, SVB crisis, and rising inflation; and also suggest what to watch over the next few weeks.
Market outlook for March 2023
The Indian stock market has slipped from a range of 17,500 -18,100 to a lower range of 17,500-16,700/16,800. According to Gaurav Dua, Head of Capital Market Strategy, Sharekhan by BNP Paribas, the index is expected to move in this range for the next few weeks. Furthermore, banking stocks could continue to underperform even though emerging global conditions could limit rate hikes in the USA as well as India.
CA Rakeshh Mehta, Chairman, Mehta Equities – Mehta Group, said his outlook on the market as a whole was negative in March “because of financial year end tax planning and investment by retail into various tax exemption products which would reduce money inflow into markets directly.” He added, “Looking at the market scenario, there are few factors resulting from the continuous selloff with low to no positive triggers in domestic markets, rise in global uncertainty specifically in banking sector after SVB issues and El Nino expected effect for 2023 monsoon which could raise concern over rural demand and Nifty earnings going forward.”
On the other hand, Abhishek Bansal, Chairman and Managing Director, Abans Group, believes that March is a promising month for investors. Manish Chowdhury, Head of Research, Stoxbox said that the markets were dependent on two factors, vis-à-vis US consumer price inflation data and the upcoming FOMC meeting. As a result of the SVB crisis, he doesn’t believe that a rate hike is likely, therefore “a major fall from the current levels looks a bit difficult at this stage.”
What should investors do in this correction?
According to Gaurav Dua, this is definitely not the time to reduce exposure to equity. Valuations have turned reasonable, and investors should focus on the big picture of a multi-year economic upcycle in India. “Also, the past experience shows that buying post a 10-12% decline from the recent peak normally tends to give handsome returns in the next 12 to 24 months,” he said. Rakeshh Mehta concurred with his view, stating that “if someone has long term money definitely should increase the allocation in equities, long term means minimum 1-3 years from now. Such unexpected downtrends give investors the opportunity to accumulate best in class businesses.”
Alternatively, Rameshver Dongre, Research Analyst – Equity Research, suggests waiting for more correction before increasing allocations with fundamentally strong stocks. Similarly, Manish Chowdhury, Head of Research, Stoxbox, recommended a calibrated approach of slowly building positions in equities. He agreed that some high P/E stocks could see further moderation in their multiples going forward.
Which sectors or stocks look attractive amid the current share market correction?
Gaurav Dua believes that the key investment themes to play growth in the Indian economy are capex, engineering, capital goods, infra, and consumption – both staples and discretionary. Meanwhile, Rameshver Dongre recommends the IT sector, which is making higher highs and higher lows on the weekly chart. Rakeshh Mehta said he liked infra, consumer durables, hospitality, healthcare, and IT. Manish Chowdhury thinks that power, oil & gas, and selective FMCG counters are looking ripe from a medium-term perspective. “The markets appear to have bottomed out for now, and equities, particularly in infrastructure and technology, look especially attractive,” said Abhisekh Bansal.
“On the stock specific action, we continue to like NTPC, IOC and Zydus Wellness at the current levels,” said Manish Chowdhury. Gaurav Dua added that investors should also consider accumulating quality companies from the banking and financial sector, along with IT services and healthcare.
What are possible factors that could reverse stock market downtrend?
Rakeshh Mehta and Gaurav Dua both said that global factors are wreaking havoc on the domestic equity markets. Strong earnings and inflows from FIIs could reverse the current downtrend. India is resilient on the economic front and it should only “take a couple of months before the dust settles down completely.”
Additionally, Rameshver Dongre said, “In light of recent market volatility Inflation is a significant concern, but if inflation data changes significantly in the market’s favour, the major trend may resume.” Manish Chowdhury, Head of Research, Stoxbox said, “With negative news flows from Adani Group taking a back seat and a possibility of no rate hike by the US Federal Reserve increasing by the day, we feel that a pull-back from the current levels cannot be ruled out. Also, the bond markets are suggesting on the same lines which provides additional confidence that a further sharp sell-off looks unlikely.”