Nifty down 14% from peak; is Indian inventory market oversold? Which sectors could lead subsequent leg of rally? Consultants weigh in

Indian inventory market has been beneath immense promoting stress since October final 12 months. This has dragged the benchmark Nifty 50 down by over 14 per cent from its file excessive of 26,277.35 which it hit on September 27.

The broader index, the Nifty 500, has fallen additional, down 17 per cent from its all-time excessive.

Heavy international capital outflows, weak company earnings, and slowing home financial development are the principle elements behind the latest decline.

The Nifty 50 is now on monitor to shut within the pink for the fifth consecutive month—its longest dropping streak since 1995.

Is the Indian inventory market oversold?

Consultants are divided on whether or not the market is oversold.

Ajit Mishra, SVP of Analysis at Religare Broking, believes the market is oversold. Nevertheless, it’s not in a position to rebound resulting from rotational correction in key sectors.

“Markets are actually oversold, however the rotational correction in key sectors limits the rebound and lowers the index with each passing week. Going forward, a decisive break beneath 22,500 in Nifty may lengthen the decline towards 22,000. To reverse this pattern, the index should reclaim and maintain above 23,000,” mentioned Mishra.

In keeping with Devarsh Vakil, Head of Prime Analysis at HDFC Securities, markets could quickly expertise some respite.

Vakil underscored that the indicators of enchancment in macroeconomic parameters counsel that the present softer patch in earnings development could quickly ease. Furthermore, the worst of the worth deterioration seems to be behind.

“We now enter a interval characterised by sectoral rotation alongside time-based correction and consolidation in choose equities. These shares will doubtless start their restoration as earnings development materialises, offering the elemental catalyst wanted for a rally in costs,” mentioned Vakil.

“This transitional part ought to provide tactical alternatives as capital shifts between sectors whereas the broader market establishes a extra sustainable basis,” Vakil mentioned.

Nevertheless, some consultants consider the market remains to be not oversold, as regardless of the latest correction, many shares are nonetheless at premium valuations.

“If we ask whether it is an oversold market, I’d argue it’s not. The bull run we noticed within the final 5 years has led to essentially stretched valuations for a lot of firms. Regardless of the latest correction, many shares stay overvalued while you evaluate their valuations to their costs,” mentioned Abhishek Jain, Head of Analysis at Arihant Capital Markets.

“Knowledge exhibits that about 60 per cent of Nifty500 firms are nonetheless buying and selling above their five-year PE. That is why one needs to be very cautious when selecting shares,” mentioned Jain.

Which sectors could lead the following leg of the rally?

Vakil believes BFSI (banking, monetary providers, and insurance coverage) ought to lead the markets greater within the subsequent rally.

He expects credit score development to speed up as authorities capital expenditure will increase after the elections and the implementation of budgetary proposals.

Vakil finds massive banks well-positioned to capitalise on this cycle, although margins could face slight stress, as RBI’s fee cuts result in mortgage repricing whereas deposit prices stay elevated. Public sector banks stand to learn from Nationwide Firm Regulation Tribunal resolutions and provision write-backs.

RBI determined to cut back the repo fee, to defend Indian rupee from falling sharply, injecting sturdy liquidity to the banking system, to loosen up threat weights on loans to NBFCs. Vakil mentioned these steps will doubtless assist BFSI development going ahead.

Jain of Arihant Capital identified that the continuing correction has unveiled quite a few funding alternatives.

Speaking in regards to the sectors, Jain mentioned there are just a few attention-grabbing performs that may provide good returns in the long term.

“India’s power transformation affords a compelling funding alternative in energy technology, transmission, and renewables. Indian IT firms main the digital transformation are additionally promising, particularly these leveraging AI. Pharma and FMCG firms with a concentrate on the agricultural sector even have sturdy incomes potential,” mentioned Jain.

In case of a rebound, Mishra of Religare Broking believes banking, financials, metals, power, and IT could outperform selectively.

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Disclaimer: This story is for instructional functions solely. The views and proposals above are these of particular person analysts or broking firms, not Mint. We advise buyers to examine with licensed consultants earlier than making any funding selections.