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The correction in the Indian market and rupee is still low compared to other peers in Emerging Markets (EM). After Russia invaded Ukraine, equities were tossed away down the hill as investors carried panic selling over uncertainties in global economic growth. Foreign funds inflow made record selloffs, while the rupee suffered severe shocks just like other world currencies against the dollar. Rate hike trends escalated to tame inflationary pressures, while commodity prices skyrocketed. However, in the second quarter of FY23, the benchmark Sensex and Nifty have made some notable recoveries. Although market sentiment still stays volatile due to macroeconomic conditions, however, the scenario brings a good opportunity for long-term returns in Indian equities.

In the last six months, Sensex and Nifty 50 have recovered some of their downfalls and have surged by over 2.5% and 2.3% respectively. This is a far more promising performance than compared to major indexes like Dow Jones which has tumbled by nearly 11% in six months. Not just that, even London Stock Exchange Footsie has shed over 3%, Shanghai's SSE Composite Index plunged over 4%, Australia's S&P/ASX 200 index recorded a nearly 9% fall, and South Korea's Kospi index dived by over 13%. Japan's Nikkei has made a marginal upside in six months. These are the performance between March 21 to September 21, 2022.

Year-to-date, the Indian rupee has depreciated by more than 7% against the US dollar. A latest Crisil report revealed that among India's competitors, Vietnam’s currency has dropped relatively less by 1%, while the Chinese renminbi has depreciated much more (9%), and Bangladesh's currency has seen a double-digit decline (10.6%). This is far less compared to advanced economy counterparts like Euro and the British pound which have depreciated by 11.7% and 17.6% against the US dollar respectively.

The rupee which struck an all-time low of 80.12 on August 29, has managed to stay below the 80 levels against the greenback as of now.

As per an Emkay Wealth Management report titled 'Navigator', the Indian economy is resilient and has shown strength despite weakness across the globe. The same can be seen in the equity and currency markets, the correction in the Indian benchmark indices and INR has been quite low compared to the other EM peers.

Emkay's report added, on a closer look at the selling by overseas investors closely, it can be seen that much of it is in the large-cap space and not in the mid-cap or small-cap space.

"The market cap preferences may be viewed or modified accordingly. Any corrective downward movements should be utilized as opportunities to invest for the long-term portfolio," the report said.

Currently, recession fears have taken a toll on market sentiments, coupled with expectations of aggressive rate hikes from major central banks, stubbornly multi-year high inflations, and energy crises in Europe among others. Fed is likely to hike interest rate by another 75 basis points in the policy announcement scheduled for later today.

On the international market, Emkay's report explains it "is witnessing heightened volatility as the economies battle inflation and a high cost of living. In addition to this Europe may be in for difficult times due to the issues that are likely to crop up in connection with oil and gas supplies due to the East European situation."

In the report, Emkay highlights while this may not be positive for the exports business, those sectors or companies which may have business exposure to the external sector may be affected due to the developments. In the immediate term, this is a concern that needs to be diligent about.

Explaining India better than its peers, Emkay's report said, India’s latest GDP data reflect a resilient and robust economy compared to any of the comparable economies in the emerging markets space. While the selling by overseas investors has been there in all the emerging markets, the extent to which the currency depreciated is also comparatively less in the case of the domestic economy.

Further, the note added, the level of economic activity is better with one of the simple signs of the level of activity moving up.

However, Emkay's note also said, a significant challenge for the markets in the immediate is the dwindling liquidity and the rising rates. This policy is to contain the inflationary pressures, which may steal the economy of its efficiency and impede growth by adversely affecting consumption demand. Rising rates result in higher cost of funds and may be a drag on companies that have a huge outlay on capital expenditure.

Going forward, Emkay's note said, the last recorded credit growth was 18%. This is quite healthy given the fact that India is witnessing an uptick after half a decade of slow credit growth. The country will be quickly moving into the festival season and it would also help promote demand and consumption, and discretionary consumption is an area that may be able to perform better. Consumption in the fashion and apparel sector too may look good with better earnings prospects.

Emkay expects the manufacturing sector to perform well in the light of the spends by the companies and the various initiatives by the government like PLI, and also due to the opportunities presented by China plus one, and the key beneficiaries are likely to be autos, auto ancillaries, engineering companies, and specialty chemicals.

"Not only domestic growth but also some amount of exports growth would help manufacturing," the report said.

According to Emkay's note, this is a time to be focusing on earnings quality, businesses that have strong balance sheets, leadership position in the respective business and demonstrated & persistent business growth. Such companies will have greater stability and quality even in the face of adverse conditions.

On Wednesday, due to feeble global cues, Sensex settled at 59,456.78 lower by 262.96 points or 0.44%. Nifty 50 plunged by 97.90 points or 0.55% to end at 17,718.35.

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