A further 5-7% fall may prompt investors to buy the dip: Taher Badshah

Although India has experienced smaller declines compared to some global markets, it remains a compelling destination for foreign investors due to its strong long-term structural prospects and transformational phase, said Taher Badshah, chief investment officer at Invesco Mutual Fund.

This is not a bubble, but there are some sectors like industrials, where valuations might be euphoric, he said.

A 4% correction is healthy for the market, and there might even be another 5-7% fall, he said. For things to take a turn for the worse, a lot would have to go wrong, like a delayed rate hike or escalating tensions in the Middle East. And until then, these market dips are par for the course, he added.

Badshah pointed out that “a further 5-7% correction ahead could make the risk reward favourable for investors looking to ‘buy on dip’”.

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Edited excerpts:

To begin with, what triggered today’s sell-off?

A confluence of factors played spoilsport. First, the surprise rate hike by the Bank of Japan and the unexpected impact on the yen carry trade caught investors off guard. Next, weak economic data in the US suggested a potential slowdown in the world’s largest economy, casting doubt on the previously expected soft landing. Additionally, geopolitical tensions between Israel and Iran have further unsettled the markets. These issues have created a domino effect, impacting global markets, including India.

The Nifty 50 declined 4% in the past 2 sessions, while the India VIX settled 42% higher today. Do you think it was a bubble and is this the moment when the bubble starts to burst?

While valuations have certainly risen meaningfully, recent events have been rather unsettling—such as the impact on the yen carry trade, which caused swift and sharp market declines. Even so, this is not a bubble. But there are some sectors like industrials, where valuations might be euphoric.

Read more: Services PMI: Steep price hikes could take the wind out of companies' sails

All said, a 4% correction is healthy for the market, and we might even see another 5-7% fall. For things to take a turn for the worse, a lot would have to go wrong, like a delayed rate hike or escalating tensions in the Middle East. Until then, these market dips are par for the course.

Do you believe it is an opportune time to enter the market currently? What’s the strategy a savvy investor should follow from hereon?

So, a further 5-7% correction ahead could make the risk reward favourable for investors looking to ‘buy on dip’.

India has fallen relatively less as compared to some other global markets over the last day. So how does that place India among emerging market peers?

Over the past 2-3 years, India has ascended the ranks and is now recognized as one of the most stable, investable, and attractive countries for several reasons, including robust corporate earnings and economic growth. Although India has experienced smaller declines compared to some global markets, it remains a compelling destination for foreign investors due to its strong long-term structural prospects and transformational phase.

Which sectors are likely to take centre stage in the future?

We might see a shift in sector focus ahead. Recent developments suggest that an interest rate cut could come sooner than expected, which would spotlight growth-oriented sectors while value stocks recede. This shift could make consumption-driven and defensive sectors, such as pharmaceuticals, FMCG, and IT, particularly attractive.

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