Nifty 50 unlikely to hit new highs this year; there’s more room for correction, says Siddarth Bhamre

Despite the heavy bear hammering that Indian equity indices have faced in the past six months, top stock market analyst and head of research at Asit C Mehta Investment Intermediates Siddarth Bhamre does not see a rebound in the near term. Bhamre told Mint that markets could correct some more while suggesting that it would be adventurous to take exposure in mid-cap and small-cap segments now. Edited excerpts:

Undoubtedly, the market is going through one of its roughest phases since the COVID-19 pandemic. How long do you see the pain continuing?

It’s always difficult to gauge how long a bull market or a bear market will last, but we can monitor some variables which are responsible for these large swings. If domestic money was fueling the rally, its FII money which is leading to this major correction post-COVID. Factors which are leading to FIIs withdrawing money should reverse for this pain to end. Stability in currency, incremental difference between bond yields and earning yields, relatively cheaper valuations, growth visibility, and stable international trade environment are some of the factors which attract foreign money. Our assessment suggests that there can be some more room for correction based on these metrics.

A major brunt of the fall is visible in mid-caps and small-caps. Do you think buying these beaten-down stocks would be bargain hunting or akin to catching falling knives?

It will be quite adventurous to take exposure in this segment for now. Most of the fund flow in domestic institutions last year came in mid and small cap schemes, and we haven’t seen any major outflow from there yet but portfolios are in deep red. So, any further downside or any material bounce back may lead to outflows, which will add pain in this segment.

Where do you see a buying opportunity in the current market and why?

Following a market correction, a period of stability and gains often ensues, typically led by large-cap stocks. This is subsequently followed by a rebound in mid-cap stocks.

The recent correction has created attractive valuations for several large-cap stocks across various sectors. Many of these beaten-down names now offer compelling investment opportunities, poised for potential gains as the market stabilises and recovers.

Investors may consider revisiting these large-cap stocks, which have been oversold during the correction, and are now trading at discounted prices. As the market regains momentum, these stocks could lead the charge, followed by a potential resurgence in mid-cap stocks.

Some of the sectors where we believe there is a good value proposition at this point in time are paint, life insurance, FMCG and some aspects of auto and ancillary. In a bull market, money chases growth, whereas in a bear market, money hunts for value. Market forces money managers to change their approach. We believe the above-mentioned sectors offer value at current levels. Yes, there may be reasons which are blurring the earnings visibility in the near term, but clarity will emerge in a few quarters.

Do you expect Nifty 50 to scale new highs this year after this pain period ends? What would be your year-end target for the index?

No, the probability of new highs this year looks very dim. Earnings expectations for Q4FY25 and Q1FY26 are not very encouraging. Also, as mentioned earlier, there will be supply from domestic participants at every incremental gain from here. It’s difficult to give a year-end target as such, but we don’t see double-digit gains in the market in this calendar year.

The IPO market is seeing a clear slowdown, with fewer issues and lower subscription levels. What could be the possible reasons?

Capital raising is a function of a bull market. I mean, you see IPOs raining when liquidity is ample and markets are rising. It is relatively easier for promoters to convince investors to invest, and hence, you saw an avalanche of IPOs in recent times. However, in a falling market, when the existing portfolios are bleeding and many listed names become attractive, fund managers/investors tend to shy away from new names and prefer to consolidate and re-evaluate their existing portfolios and hence, it becomes difficult to raise money for a new company irrespective of how good or bad the investment proposition is. So, the IPO market will become vibrant when the market starts moving higher again.

Global economy is facing headwinds amid trade wars and inflationary pressures. What do you think would be its impact on India Inc’s earnings?

Inflationary pressure based on the supply chain is not significant right now, but yes, due to trade restrictions or challenges, we may see some increment. I think, the bigger issue is trade wars, which may lead to a slowdown in a global economy that is already into a slowdown mode, especially if you look at Europe and China. As far as we are concerned, we cannot isolate ourselves from world trade. There will be an impact on us as well.

Today, our sectors like IT, pharma, textile, jewelry, etc. are heavily dependent on exports. In fact, there are many companies from other sectors which derive a substantial amount of their revenue from exports. In the midst of a trade war, we will have to assess things case by case. However, I believe that these tough trade talks may not last for long, and there will be some order in place. Till that time, we will have to deal with the volatility, but this volatility will offer a good opportunity to invest.

Gold is one asset class that is flying high. And Indians have generally shown a preference for the precious metal. Where do you see gold headed?

Gold has indeed had a remarkable run in both USD and INR terms. Usually, strain in USD fuels rally in Gold but due to geopolitical uncertainties we have seen both USD and gold appreciating. I have never been proponent of investment in Gold and this astronomical rise in Gold prices has not managed to change my perception.

How should the new-age investors who entered the market during the bull run navigate the current challenges? Any advice or tips for them?

It is an unprecedented event for the investors who entered into markets after Covid, and the number of such investors is very large. It will be very normal for many of them to lose faith in the idea of wealth creation through stock markets. However, that’s where the learning should step in. Instead of becoming a forced long-term investor in the stocks which have been beaten down, investors should assess their portfolio and churn them according to the current scenario. As mentioned earlier, this is the time to hunt for value and value is a function of earnings and not just price. A typical mistake which people make in such markets is to buy stocks which have significantly corrected from the top and ignore earnings. When the tide turns, and it will turn at some point in time, only those names where earnings are visible will bounce back.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.