Wait for stability, experts tell investors

Analysts expect the indices to dip further if the global macros do not stabilise

It has been a roller-coaster week for the markets, with the benchmark indices falling nearly seven per cent. From its peak, the Nifty50 index has lost nearly 24 per cent till date.

Given the magnitude of the fall, on account of a host of global and domestic issues, analysts suggest the pain is not likely to go away in a hurry. On the contrary, they expect the indices to dip further if the global macros do not stabilise.

A K Prabhakar, head of research, IDBI Capital, says: “In case the correction across global markets picks up pace, we can expect the Nifty to hit 6,357, the high level of 2008 (when a global financial crisis erupted). The fall in the markets does seem a repeat of 2008.”

Adding: “A lot of global indices have breached their two-year low levels on the downside. The only index that was sustaining was the Dow Jones Industrial average and that, too, has started to slide since the past few sessions. If it goes below 15,370, there are chances that it can tumble another 25-30 per cent. The other global indices are likely to follow. The rupee, too, can hit 72 against the dollar in such a scenario.”

So, what should you do in such a scenario? Given the developments, Prabhakar says retail (small) investors should not look to average out, at least for two to three months. They should wait for some clarity and stability to emerge in the global markets before putting in fresh money. Despite the uncertainty, he expect stocks of companies with earnings visibility to do well in the medium to long run.

“Taking money off the table will be a safer option than averaging out the losses or putting in fresh money at these levels,” he advises.

“In this economic environment, a further crisis in the stock markets and the banking sector would prove to be a disastrous one, unless the Reserve Bank of India (RBI) and the government take corrective measures. Whether they like it or not, RBI and the government would be forced to understand the ground realities and ultimately implement flexible polices which would be conducive to the banking system, economy and the stock markets. Hence, we urge investors not to panic and offload quality stocks, provided 30 per cent of overall wealth is parked in liquid assets,” says G Chokkalingam, founder and managing director, Equinomics Research & Advisory.

Deven Choksey, managing director and chief executive officer, KR Choksey Securities, advises assessing the fundamentals of companies/corporate earnings before investing. “Investors need to be stock-specific and invest where growth corporate earnings is visible,” he says. Analysts at JM Financial also believe stocks having high earnings resilience would lead the way in this volatile market.

“HDFC Bank, Infosys, Tech Mahindra, IndusInd Bank, Eicher Motors, Axis Bank, Asian Paints and Bajaj Finance are the preferred picks in the large-cap segment. Bajaj Finserv, Torrent Pharma, Titan Company, Voltas and Indocount Industries are preferred in the mid-cap segment,” said Suhas Harinarayanan of JM Financial in a recent report, co-authored with Shyam Sundar Sriram and Loganathan B.

Analysts at Bank of America-Merrill Lynch, however, remain optimistic and suggest the ongoing correction provides a good buying opportunity.

“Given the uncertain environment, we continue to recommend organic growth (consumer-focused banks, four-wheelers, consumer discretionary, cement) and the India-agnostic basket (information technology, health care),” it said in a recent India equity strategy report.