Market corrections are "normal", opportunities for multibaggers remain, suggest experts

“You have to select the stock, look at the valuations, but the current environment does offer that kind of opportunity to cherry-pick some of these companies,” Daga added.

The current market correction is not surprising and still provides opportunities to find multibaggers, according to industry experts. They were speaking as part of PMS AIF World's Crystal Grazing 6.0 event on February 15.

PMS AIF WORLD is an alternate-focused investment platform designed specifically for High Net-Worth Individuals (HNIs) and prioritizes wealth creation through alpha-driven investment strategies.

Samit Vartak, Founding Partner and CIO, SageOne Investment Managers, explained that market cycles typically peak every two and a half to four years. “It’s the sign of a bull market that markets run ahead of the earnings. Then there are certain risks that emerge, and then there is a correction in the market,” he said. Vartak gave the example of the 2008 market crash, where the Nifty index corrected by 55% and small caps by 75% after peaking.

Vartak added that the current correction is largely driven by overvaluation rather than a crisis. “There is no crisis in the system, no banking issues, and the corporate balance sheet is one of the best ever,” he said. He pointed out that the markets have surged nearly 4X since the COVID-19 pandemic, particularly in small and mid-cap stocks, justifying a correction.

According to Vartak, the focus for investors during such times should be on selecting the right companies. “Unfortunately, what happens is that investors keep on jumping from one thing to another,” he said, urging a more strategic approach to investing.

Sandeep Daga, MD & CIO, Nine Rivers Capital concurred. “We were in an overvaluation zone in general, and especially a lot of the small caps were trading at abysmally high valuations. So this correction actually is a very good correction in an otherwise long-term bull market that India is in,” he explained. Daga views the current environment as an opportunity to invest in high-potential sectors at more reasonable valuations.

Currently, Daga sees opportunities in precision engineering and healthcare. “Precision Engineering caters to both automotive and non-automotive sectors, with opportunities emerging in India and globally,” he said. He also highlighted the healthcare sector, pointing out that many companies are entering through IPOs. “You have to select the stock, look at the valuations, but the current environment does offer that kind of opportunity to cherry-pick some of these companies,” Daga added.

Mitul Patel, Senior Executive Vice President, 360 ONE Asset, noted that their focus has shifted from cyclical stocks to secular and defensive sectors post-COVID. Currently, he sees sectors with strong pricing power, such as telecom and cement, as being attractive due to consolidation and pricing potential. He added that their strategy has evolved with the market. “You need to pick one of the best players, the most efficient player who will sustain in the long run,” he said.

Vartak also spoke on finding multibagger opportunities in the unlisted space, noting that unlisted markets require different expertise. “Unlisted space is much more opaque, and sometimes in the recent past, there has been so much demand for unlisted space that you get very little time to do any real analysis,” he said. "In the listed space, you get prices that are never really offered in the unlisted space," he added. He suggested that during market crashes, unlisted stocks often come at premium prices. To find multibaggers, focusing on high ROE, sustainable growth, and market share gain is key, he said.