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Markets unsure about Corona, but stocks in 'bear' zone

About 44% of NSE 500 stocks are trading 20% lower than their respective 52-week high

December 01, 2021 / 01:23 PM IST
 
 
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Major benchmark indices seem ambivalent about the impact of the new Coronavirus variant Omicron on the economic growth, evident from the sell-offs and buying bouts alternating over the past few days. Meanwhile, individual stocks seem to be humming a bearish tone. Close to 44 percent constituents of the key benchmark index NSE 500 are already trading 20 percent lower than their respective 52-week high, a study by Moneycontrol showed.

A 20 percent correction in stock prices is considered the threshold for a bear market, according to the conventional definition. Baring two companies – Trident and Tata Teleservices (Maharashtra) that were trading at the 52-week high level - all stocks in the NSE500 index were trading lower than their annual peaks at the close of market on November 29.

The interactive chart below will help you deep dive into how bears have gripped stocks, sector-by-sector and company-by-company.

Companies that declined less than 10 percent were a minority, at just 61 out of 500. These are majorly from defensive sectors like pharmaceuticals, IT services and FMCG, although some names from the financial sector, automobiles and auto-ancillaries also figured in this category. A large swath of companies – about 218 – clocked losses of 10-20 percent from their yearly highs and 197 stocks fell 20-40 percent from 52-week high levels, as on November 29.

“Markets are a bit jittery in the face of high valuations and flow of negative newsflow”, suggested Deepak Jasani, Head of Retail Research, HDFC Securities.

“The bull market since April 2020 has now run for 19 months and this is the first time in this period that the index has corrected for more than 1500 points, so yes, in this sense, we can say that a meaningful correction has set in”, said Manoj Dalmia Founder & Director, Proficient Equities Limited.

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Led by strong global liquidity and greater visibility on economic recovery, Indian markets have been the best performer among all developed and emerging markets this year, with the key local indices BSE Sensex and Nifty 50 touching record highs on October 19 when both BSE Sensex and Nifty 50 jumped to their highest levels in history.

However, since then, markets have been in a corrective phase on fears of faster unwinding of the easy liquidity conditions and the imminent threat of higher interest rates. Now, the latest fear is new Corona virus variant Omicron, which is said to be far more dangerous than all the previous versions.

In just over a month, Indian markets have corrected more than 8% from their record highs. Though the experts still voice optimism about the India growth story and the strength in company financials currently, the stock market has witnessed widespread correction across sectors and market-cap segments.

“One should ideally look at the BSE Smallcap and Midcap indices for hints about change in trend. While the BSE Midcap index has fallen more than 10% from the top, the BSE Smallcap index is around 10% lower than its recent top”, said Jasani of HDFC Securities. More conviction about the start of a bear market could come when these indices fall ~20% from their recent highs, he added.

In some stocks, especially in the small and medium-cap space, cuts have been steep. A total of 24 companies corrected by more than 40 percent out of which 6 stocks have witnessed a correction of more than 50 percent. Out of these 6 stocks, 2 companies are from the finance sector and 1 each from healthcare, IT, banking and retail sectors.These 6 companies are Ujjivan Small Finance Bank Ltd, Dhani Services Ltd., Ujjivan Financial Services Ltd., Sequent Scientific Ltd., Vaibhav Global Ltd. and Vakrangee Ltd.

Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities Ltd. however, continues to exude confidence in Indian markets and said, “Bull Phase is intact. Infact the good news is that gap between price and valuation is narrowing”.

Currently the market is falling mainly due to hot money (FPI) is exiting rapidly, Chouhan added. “They don't have any choice as the dollar index is moving upward as the expectations regarding interest rate hike is increasing at every fed's meeting”.

However, domestic institutions are infusing funds on a regular basis, which is offsetting selling of foreign institutions, which is positive. Also new IPOs are attracting liquidity which shows investor confidence in the markets.

“Market breadth gives more evidence of the correction being protracted, at least for the time being”, said Dalmia of Proficient Securities.

“Sell on rallies is being witnessed ahead of the calendar year end from FPIs”, said Jasani of HDFC Securities. In case we do not see indices falling sharply by mid December, then we may see one more rally, but whether we will make a new high is not clear at this point in time, he concluded.
Gaurav Sharma
first published: Dec 1, 2021 01:04 pm

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