As stocks continue to fall below 52-week high, here is what experts suggest

As the earnings season approaches, sectors like FMCG, healthcare, and domestic consumption would likely perform better.

At a time when stocks across the spectrum – large-caps, mid-caps and small-caps – have witnessed huge corrections and are trading significantly lower than their respective highs, experts are advising investors to look at defensive themes and sectors that are relatively better prepared to counter the ongoing market volatility.

Sectors like healthcare, auto, chemicals, banking, NBFCs, power, defence, and FMCG among others are high on the list of analysts though they add a caveat that investors need to adopt a selective stock picking approach as there are pockets of value and exuberance within each sector as well.

Indeed, since if one looks at the large cap space, the biggest corrections of around 28-39 percent from the year's high has been seen in energy (power, oil & gas) and banking space (private and public sector banks).

In the small-cap space, the correction has been across sectors like engineering, IT and textiles while the mid cap space has seen bulk of corrections happening across defence, telecom and banking.

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Bets and themes for the week ahead

Anand Rathi's Tanvi Kanchan believes that the past weeks have seen considerable buy-side volatility and sell-side pressure due to both domestic and international factors. This includes a widening trade deficit and sluggish global demand affecting India’s current account deficit.

However, she added that the broader indices have delivered about 15 percent returns this month, and “we will begin seeing Q2 earning growth, which will have a sentimental impact.”

Despite the current market corrections, Rajesh Palviya from Axis Securities believes sectors such as pharma, automobile, and chemicals are maintaining a bullish outlook in the near term.

“Looking at this correction, sectors like pharma, auto, and chemicals are still holding their ground. If I rank them, automobile and pharma are outperforming and remain bullish despite the corrective moves,” says Palviya.

On the other hand, he notes that sectors like railways, defence, and banking have faced significant declines. “These segments, particularly PSU banks, defence, and railways, began correcting over a month ago due to valuation concerns. There has been some profit-taking,” he added.

While most experts expect continued declines for segments like banking and see investors staying away from such segments, Kanchan sees potential contrarian bet in the banking theme.

“Given the recent corrections in PSU banks and private banking stocks, there’s a strong argument for considering contraction bets in this space. These banks have been under pressure due to rising costs and concerns over asset quality,” she says.

“While there is potential for recovery, investors should be cautious. The banking sector may see further corrections if global economic conditions worsen, but there could also be opportunities for savvy investors who understand the risks,” adds Kanchan.

Rupeeting's Sagar Lele also has a slightly different view on the segment. “In banking, we are looking at banks with a corporate base and corporate deposit base more keenly than retail-focused banks. We’re also probably more inclined toward NBFCs than banks because they tend to perform better during rate cut cycles,” he says.

On PSU banks, Wealthmills Securities' Kranthi Bathini believes that despite some profit booking, investors with a long-term horizon may consider adding these stocks gradually.
Another segment that has been on a rally but also faced corrections over the last few months have been the power and defence segments.

“Corrections in defence and power stocks could present buying opportunities, but significant declines are not expected given their previous performance,” Bathini explains.
But on these sectors, Lele notes that in sectors like defence or power, there is no immediate trigger visible right.

“Even with companies like Mazagaon (Dock Shipbuilders), you’ve seen that despite chatter of orders coming in, due to peak margins and high valuations, the stock has been flat even with order booking. So, we’re staying away from those themes right now and focusing on areas with more fundamental visibility,” he says.

As the earnings season approaches, Bathini suggests that sectors like FMCG, healthcare, and domestic consumption would likely perform better during this volatile phase and in the coming week. “These stocks are not overvalued and remain attractive,” he says.

HDFC Securities' Deepak Jasani is of the view that sectors that have seen high selling, such as banks, auto, and oil & gas, are likely to see rebounds in the near term. “We expect the largest bounce-back in sectors that have faced the most significant corrections,” he says.

This could include banks, oil & gas and FMCG, auto and realty. In terms of defensive buying, he suggests sectors like healthcare and IT.

Market View

Lele notes that there are multiple pockets which have corrected by around 30-40 percent, but that has come after a huge rise. “Some of these stocks went up 5x or 10x, and anyway, the valuations were very absurd. Some of them were trading above 100x. So, we are not in a position where we are looking at this as a bargain and rushing to buy in," he says.

Kanchan adds that investors need to remain agile in their strategies. She says, “the interplay of domestic resilience and external pressures creates a complex landscape. Investors should be prepared for volatility while keeping an eye on fundamentals, as markets often reward those who can navigate through uncertainty.” She adds that long-term investors should focus on stocks with solid fundamentals and robust earnings potential.

Palviya also suggests that geopolitical tensions and capital flow towards China could influence market behaviour in the coming weeks. “If these factors persist, we might see further profit-taking in sectors like automobiles and private banks,” he says adding that while profit-taking can create short-term volatility, it could also present opportunities for informed investors to capitalise on dips.

Experts like Bathini believe that while Indian markets are resilient, geopolitical issues are entering a new territory, and how they unfold will give the markets a clear direction. “The markets are awaiting cues from the upcoming RBI meeting, as expectations for an early rate cut could influence investor sentiment,” he says.

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