Lingering concerns over rising inflation, interest rate hikes and sustained selling by foreign institutional investors (FII) have weighed on market sentiment in the recent past. As a result, the benchmark equity index BSE Sensex has cracked nearly 5 per cent in May so far and around 13 per cent from its all-time high, scaled in October last year. Likewise, broader indices including the BSE Midcap and BSE Smallcap have plunged 18 per cent and 16 per cent from their respective all-time highs.
Should you buy the dip?
Although the weakness may continue in the near term, investors should be ready with a shopping list to buy the good quality stock at decline, which falls below their historical average valuation, according to market watchers.
Mitul Shah, head of research, Reliance Securities said, “We believe, the market is largely in the oversold zone, FII selling and Fed’s unwinding would continue pressure on equity market, therefore investor needs buy-in tranches on the decline and hold it for long term gain.”
Foreign institutional investors have offloaded shares worth over Rs 1.60 lakh crore in 2022 so far against inflows of Rs 25,750 crore in 2021 and Rs 1.70 lakh crore in 2020.
Satish Ramanathan, chief investment officer-equity, JM Financial Asset Management said, “We have been advising our investors to continue using SIPs to combat this volatility as the medium-term outlook looks bright for India. As our demographic dividend kicks in, and China+1 and PLI also contribute, we expect corporate earnings to resume their growth trajectory. Increasing liquidity levels is also advisable for investors to reduce volatility. There will be a period of sharp up moves as well, and investors need to be in the market to benefit from these moves.”
Emerging themes to bet on
Considering the present scenario, analysts suggest a few emerging themes that may deliver a solid return to investors in the long run.
Ramanathan of JM Financial Asset Management said, “We see electric vehicles (EV) which could become an emerging theme, as also exports coming through across many sectors. Chemicals will continue to see growth as the Indian industry shifts to domestic manufacturing. At present, fintech may not appear to be very big but there could be some winners there as well. Many themes take time to develop but once entrenched will play out well over a decade.”
On the other hand, Amit Gupta, fund manager-PMS, ICICI Securities added that they believe in five themes, which are emerging and would compound higher returns in the coming 5-7 years. “Stock picking should be done from themes like digitisation, formalisation of the economy, India as a global manufacturing hub, infrastructure and housing capex and consumption boom,” he added.
Mohit Nigam, head-PMS, Hem Securities said, “Some sectors or themes which may outperform the market in terms of returns are defence, electric vehicles, IT and Infrastructure. We believe that the momentum is going to be very strong in these sectors in the coming few years. All these themes that we uncover share one common factor which is their exponential growth potential.”
India’s electric vehicle (EV) market is expected to grow at a compounded annual growth rate (CAGR) of 90 per cent in the ongoing decade to touch $150 billion by 2030. The Indian EV market is currently in its initial phase and is estimated to grow at a CAGR of 90 per cent from 2021 to 2030. In terms of penetration, EV sales account for barely 1.3 per cent of total vehicle sales in India during 20-21.
On the other hand, the Indian defence market is at the cusp of revolution, with the introduction of government policies like Atmanirbhar Bharat, Make in India and the introduction of private players to speed up defence production and increase export by five times. India aims to increase production output to $25 billion in the coming years which makes defence an attractive sector in park investor’s funds.
Mitul Shah, head of research, Reliance Securities said, “We believe that the next decade would witness a massive transformation on the EV front, and the first phase of an inflexion point in EV adoption would start in 2023, with many EV makers and companies associated with the EV ecology plan commencing operations in the next 1-2 years. Moreover, the government’s thrust on EV over IC would boost innovation, development and localisation. This would also lead to the need for green energy, therefore renewable energy sector would continue to maintain a higher investor interest as ESG is gaining momentum across the investment community.”
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