Corrections bound to occur at higher valuations; opportunities available in smallcaps: Nirali Shah of Samco Securities

We suggest traders maintain a mild bullish to sideways bias on the market and keep tight stop loss just below the market support, said Shah.

April 24, 2021 / 11:23 AM IST


Stock markets are a forward-looking and given that the majority of the stocks are already trading at frothier valuations, corrections irrespective of the reasons are bound to occur, said Nirali Shah, Head of Equity Research, Samco Securities said in an interview with Moneycontrol’s Kshitij Anand.


During such uncertain times, it would be best to remember what Peter Lynch said: ‘Far more money has been lost by investors preparing for corrections or trying to anticipate corrections, than has been lost in corrections themselves.’



Q) Sensex, Nifty tested crucial support levels and then bounced back but still closed in the red in the week gone by. What led to the price action on D-Street?


A) The Nifty tested crucial support levels of 14,200 and bounced back this week as investors looked beyond rising covid-19 cases and restrictions.


The Indian government’s announcement of a vaccine for all from May 1 and decline in 10-year U.S treasury yields led to buying at the lower levels.


Q) Small & midcaps have been more resilient in the week gone by. What led to the price action? But there were some stocks which fell in double digits...


A) At the broader level, markets are likely to be volatile but investors are now adopting a stock-specific strategy by allocating funds to fundamentally-strong stocks with growth prospects.


There still remains opportunities across quality small and mid-caps, however, the ones with soaring valuations and poor performance will see their stock prices tank swiftly at the slightest hint of trouble.


Q) Sectorally, consumer durable, power, realty indices were the top losers in the week gone by...


A) Consumer durable sector is facing a slowdown in demand because of rising raw material prices, which are now being passed on to customers by these companies to protect themselves from a margin squeeze.


Besides, the Covid-19 wave has dampened the sentiment in not only the consumer durables sector but also in realty and power sectors just when they were looking at a stable recovery.


Q) Nearly 50% of IPOs listed in 2021 have gone below the issue price. What should investors do – time to buy them on dips or avoid?


A) “Subscribing for listing gains only” has been the overall call for 50% of IPOs in FY21 since their fundamentals didn’t seem strong enough to avert the challenges of the pandemic.


Besides, some of the IPOs were listed at exorbitant valuations which weren't justified, thus leading to a fall in prices.


Investors are advised to take informed decisions on IPOs keeping their risk and liquidity needs in mind and avoid issues that are weaker from a fundamental perspective. Quality issues with favourable valuations can be added on dips.


Q) Any important levels which investors should watch out for in the coming week. Which are the important resistance and support levels?


A) The immediate support and resistance for Nifty are now placed at 14,150 and 14,700 respectively. The index is now trading outside of the major rising channel, so bulls need to protect the current support as any break below the same can trigger a bearish sentiment throughout the market.


We suggest traders maintain a mild bullish to sideways bias on the market and keep tight stop loss just below the market support.


Q) What should be the strategy of investors amid volatility due to rise in COVID cases, falling in rupee, economic activity taking a hit etc.?


A) Stock markets are a forward-looking tool and given that the majority of the stocks are already trading at frothier valuations, corrections irrespective of the reasons are bound to occur.


This time’s reason is nothing but the second wave which is causing this weakness in broader markets.


During such uncertain times, it would be best to remember what Peter Lynch said: ‘Far more money has been lost by investors preparing for corrections or trying to anticipate corrections, than has been lost in corrections themselves.’


Therefore, investors are advised to stick to their equity allocation strategies and increase weight on every correction in quality stocks which are facing short-term headwinds.


Q) FIIs turned net sellers for the first time in 6 months. What is causing the panic?


A) Rising COVID-19 cases and several Indian states announcing severe restrictions have led to uncertainty regarding domestic economic growth and corporate earnings, thus resulting in FIIs turning net sellers. However, this correction is a buying opportunity for long-term investors.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.

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