Wait and watch or it is time to buy?

Indian benchmark indices have shown some recovery after yesterday’s strong sell-off, with a 400-point loss on Nifty. After recording the largest single day fall since June 2022 yesterday, the BSE small-cap index saw a swift recovery, gaining 58 percent. Nifty ended with 34 percent  gains and BSE 500 gained 42 percent.

The question in most investors’ minds now is, is it a good time to buy, or is it still a wait-and-watch market?

According to Neeraj Chadwar, Head of Research – Fundamental and Quant at Axis Securities Limited, “A correction was largely anticipated as markets in the past few months have been exuberant. The next few months are going to be marked by strong volatility with major events lined up, especially with both elections and earnings season likely to drive market sentiment.”

In terms of current market themes, Chadwar highlights that in the last few months, momentum was the dominant theme, delivering the highest returns. Going forward, markets will focus on stocks that offer ‘growth at a reasonable price’. Here is where to look for profitable trades.

Buy quality at reasonable prices: Going forward, Chadwar suggests investing in stocks which offer “quality and growth at reasonable prices”.  He recommends that investors remain invested in the market and maintain good liquidity, about 10 percent cash, to use any dips in a phased manner and build a position in high-quality companies, where the earnings visibility is high.

Andrew Holland, CEO, Avendus, says markets tend to get frothy when they go up. “If you like a company and you think valuations are now more reasonable after the sell-down, then you should continue to buy it at every correction”.

Large caps over mid-small caps

Chadwar says that his analysis suggests that in the current market, it’s better to buy large-cap companies. Even though small-caps have corrected, they offer less margin of safety in terms of valuations at current levels compared to largecaps. “The broader market may see some time correction in certain pockets in the near-term, and flows will likely shift to largecaps,” he says.

Sectors and themes to focus on

Holland says Nifty earnings growth is likely to be 12 to 15 percent in the coming fiscal. “But underneath that, there’s many themes, where one could make a lot more money. So, electronic manufacturing, hotels and airlines, beverages because of premiumisation, and then obviously the government’s going to be spending on renewables, defence and railways. So, those sectors have quite a long runway of strong growth.”

In the large-cap space, Chadwar says he is overweight on the financial services, automobiles, and telecom sectors.

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