Indian market has plunged more than 5 percent since July 5 and has dived below crucial support levels. Sensex gave up 38,000 while Nifty broke below 11,300 on July 24.
A sharp fall in the markets is largely on account of persistent selling by foreign institutional investors (FIIs) who have pulled out more than Rs 11,000 crore from the cash segment of Indian equity markets so far in July.
Levying of surcharge on FIIs, muted earnings growth, below-normal monsoon, signs of a lingering slowdown in the Indian economy, and no extra stimulus in the Budget from the Finance Minister to push growth in Asia’s third-largest economy weighed on sentiment.
“Due to a slowdown in tax revenue, the government has decided to reduce spending and generate extra revenue by taxing super-rich. There is a fear that this will impact FPI changing their tendency to invest in India especially for short-term traders,” Vinod Nair, Head of Research at Geojit Financial Services told Moneycontrol.
He further said that Q1 results are also discouraging and show that the economy continues to be weak and the global trend is subdued.
Most of the downfall has been seen in the small and midcap space in 2019. BSE Smallcap and BSE Midcap were down by about 10 percent each compared to 5 percent gain seen in the Sensex and Nifty in the same period.
But the investors can look at buying the stocks on a decline and some of the contrarian ideas that are down 10-20 percent from their respective 52-week highs, according to Motilal Oswal. This includes Bank of Baroda, Siemens, NTPC, NMDC and ITC.
Some of the sell ideas include Asian Paints, Havells India, Britannia Industries, Shree Cements and Cipla. These stocks are 60 percent up from their 52-week low.
Motilal Oswal is of the view that over the long term, out-of-favour low P/E stocks deliver disproportionate returns, significantly beating the benchmark. In 1QFY20, high P/E stocks performed the best, whereas low-P/E stocks came in second.
Indian market is trading at premium valuations and if growth concerns continue to linger it will be tough for the market to hold onto these levels, argue experts. With most of the domestic events behind us, the only trigger for the Indian market is earnings growth, which is unlikely to recover in June quarter, said Rajeev Srivastava, Head Retail Broking, Reliance Securities.
“Notably, Nifty companies are likely to deliver 6 percent earnings growth in the first quarter ended June 2019 and negative growth of 7 percent excluding the BFSI. Hence, Nifty EPS is likely to be cut further, which does not bode well for the market,” he said.