Buy the dips or brace for more corrections? HDFC Securities’ Deepak Jasani weighs in on stock market

After a volatile start in October due to geopolitical concerns and India Inc's Q2 earnings, Indian stock market appears to be back on track. Business Today interacted with Deepak Jasani, Head of Retail Research at HDFC Securities, where he shared his views on the recent market corrections, projections for indices like Nifty and Sensex in FY25, expectations from corporate earnings, and a perspective on mid- and small-cap stocks. He also shared insights on the upcoming IPO pipeline and how investors should approach them. Here are the edited excerpts:
 

Q1. The Indian stock market has seen a sharp correction recently. Do you believe that the worst is over or there can be some more corrections coming in at Dalal Street? If yes, then is it time to panic or one should buy the dips?

Ans: Indian markets have seen a sharp rally since October 2023 with minimal intermittent corrections. Given the fact that the latest macro data seems soft, valuations do look a bit stretched. Also, the Chinese market which is cheaper in valuation terms now offers an alternative to Indian markets post the series of stimulus measures announced there. This has led to some diversion of funds meant for India towards China. With Q2 results ahead of us, we may see a few stock-specific opportunities, but the overall markets may not break out upwards majorly over the next few weeks. Traders could have a good time as markets may not go one way.
 

Q2. What are your projections for Nifty and Sensex for FY25? What shall be the key factors to guide markets in the second half of the current financial year? Your top picks from the largecap basket?

Ans: A lot of hopes are built around H2. Rural revival and festive/marriage spend may push consumption spending majorly in the traditionally strong half year. Also, the possibility of rate cuts in India may trigger business resurgence. Outcome of US presidential elections and possible reduction in hostilities in the middle east may lead to the global economy starting to pick up pace. Among the largecap basket, Banks, Materials, consumption and energy stocks may see some positive activity if some of these expectations are fulfilled. Nifty could be on the upside face resistance from 26,200 while 23,500 could offer support in the balance period of FY25. Among the largecaps, we are positive on ICICI Bank, GAIL, Kotak Bank, Hindustan Unilever and L&T.
 

Q3. What are your expectations from India Inc's Q2 results? Which sectors will outperform and underperform in this quarter and which may pull off a surprise? Do you see another muted quarter for stock markets?

Ans: For Q2FY25, we will have a large base at least at the operating profit and bottomline. Corporate earnings got a big boost from the fall in commodity and energy prices in July-September 2023 quarter (Q2FY24) despite a slowdown in revenue growth during the quarter. Aggregate revenues/EBITDA/PAT growth for Nifty companies came in at 5%/21%/29% YoY in Q2FY24 led by margin tailwinds.
 

In Q2FY25, we expect the topline to grow at mid to high single digits YoY mainly due to low volume growth and inadequate realization growth. Net profits could grow at high single digits helped by cost efficiencies.
 

Within sectors, Automobiles and components, IT services, EMS, Pharma, retail, Non lending financials, Banks, Capital Goods could do well, though the rate of growth has generally been slowing down. On the other hand, Oil & Gas, metals, cement, building materials, real estate could underperform.
 

Capital goods sector could report double-digit growth in revenue and earnings for Q2FY25.  Despite the advent of the festival season, passenger vehicle inventory has reached an all-time high of 80-85 days. Auto players had to offer higher discounts but benign RM prices benefitted. Banks faced NIM pressure amid increase in deposit rates. Cement realisations remained subdued with drop seen sequentially.
 

IT companies will benefit due to depreciation of Rupee, though large deal wins are now few and far between in the face of uncertainty caused by AI and ML.
 

Steel players could see realisations falling although input costs like coking coal and iron ore were down. Non-ferrous companies seem to be going through a good period with realisations rising volumes remaining firm.  Pharma companies did well, helped by stability in US generics prices and decent sales momentum in other markets.  
 

Q4. Midcap and smallcap stocks have seen a sharp carnage lately with many stocks getting into bear grip. What is your view on the broader markets? What are your preferred midcap and smallcap picks to buy at the current juncture?

Ans: Midcap and smallcap stocks had a great run in the uprun with some unworthy companies also getting rerated. With the first signs of major weakness in the markets, these stocks come under selling pressure as institutional participation in these stocks may not happen and the non-institutional players may find exit difficult. Having said that, as opportunities for earning alpha in such stocks are higher due to lower base, high rate of growth and lower institutional participation, investors will keep hunting for growth stories among them. Among mid and smallcaps, we are positive on Federal Bank, Galaxy Surfactants, Kalpataru Power, Mahanagar Gas and Mastek.
 

Q5. IPO market is likely to get the action back with the mega IPO of Hyundai Motor India and other issues like Swiggy, Afcons and NTPC lined up for the investors. What is your take on the primary market? Do you see the action to continue in the IPO space and how should investors approach it?

Ans: Large IPOs are slated to hit the markets soon. Large offerings are timed to ensure there is enough appetite across institutional and wealthy investors. That typically happens at or near the top of the market cycle when several issues have already hit the market and given good returns. Aggressive pricing is another reason why some of the large offerings do not do well post listing. Whether a similar thing will play out this time remains to be seen. One hopes that the IPOs are priced in such a way that enough is left on the table for investors.