'Buy-the-dips' strategy may have worked well in the past, but given the heightened uncertainty in global markets, investors would be better off playing it safe for now, caution market experts.
The sell-off in global markets began last week as investors in US markets dumped technology shares on concerns of overvaluation and slow earnings growth. The downtrend intensified as the Bank of Japan hiked interest rates, and the US jobs data showed that unemployment is rising. Higher interest rates in Japan is causing many global money managers to sell assets they had bought by borrowing in yen. The weak US jobs data has stoked concerns that the economy may be slowing down.
Geopolitical tensions are further complicating the picture as Iran, Hamas, and Hezbollah seek to retaliate against Israel’s assassination of Hamas' chief and Hezbollah’s military leader.
All this comes in the backdrop of expensive valuations with the Nifty trading at a 12-month forward P/E of 23 times, compared to its 10-year average of 17.49 percent.
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Let the dust settle
Market veteran Ajay Bagga anticipates further selling pressure though he feels this downturn may be a temporary blip in a structural bull market.
"The correction presents an opportunity to reassess risk appetite and asset allocation," he said, adding, "If the market structure holds, we could see a sharp recovery. Staying out of the market poses a greater risk than enduring a short-term drop in portfolio values. Stay invested."
Unmesh Sharma of HDFC Securities Institutional Equities (HSIE) advises investors to let the dust settle before jumping in to buy shares. "While India's long-term outlook remains positive, global uncertainty needs to subside first," he said. Sharma also suggests that for those looking to put money, safe havens like consumer staples, pharma, select IT stocks, and large banks should be given priority.
Benchmark indices Nifty and Sensex have risen around 10.5 percent so far in 2024. But the bigger gains have come in small and midcap shares with the respective indices having gained 19 percent each.
Tanvi Kanchan, Head of UAE Business & Strategy at Anand Rathi Shares and Stock Brokers, views this sell-off as short-term volatility driven by profit-booking and not indicative of long-term panic in Indian equities.
"For those looking to enter the equity market, a staggered entry during volatile periods may be prudent," she said.
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According to Bagga, strong domestic liquidity could act as a safety net for Indian markets amidst worsening global sentiment, similar to the conditions seen after the election results in June and the Union Budget in July.
At the same time, relentless inflows into domestic mutual funds, portfolio management service schemes and alternate investment funds have stretched stock valuations, especially in the mid and small-cap segments.
High valuations often lead to sharp declines when unexpected triggers occur, as seen with current US recession fears and geopolitical tensions in the Middle East, said V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"Investors should wait for the market to stabilise before putting in fresh money. Fairly valued large caps and defensives like FMCG and pharma can be considered once the market stabilizes," Vijayakumar told Moneycontrol.
Traders and investors should wait for better entry levels to emerge, said Santosh Meena, Head of Research, Swastika Investmart Ltd. "The outlook for our market remains very bullish, but the potential for a significant correction means investors should consider taking profits where valuation concerns exist," he added.
Disclaimer: The views and investment tips expressed by investment 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.
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