Indian equity markets likely to trade in range bound manner in near term

After being under pressure in the last four months from December till March 2023, Indian equity markets have seen a sharp recovery in the first half of April this year. The Nifty 50 index was down more than 10 per cent from its recent peak in December 2022, which led to value buying emerging at lower levels. Initially, midcap and small cap stocks underperformed but later on gained momentum as overall markets stabilised.

Overall, Indian equity markets are likely to trade in a range bound manner in the near term, said domestic brokerage and research firm ICICI Securities in a research report.

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From the 10 per cent fall from their peak, the bounce back was sharp with selling pressure at higher levels as well. This trend of buying at lower levels and selling pressure at higher level is likely to continue in the near term.

With the Nifty 50 index EPS of ₹950, the current P/E ratio at 17600 on the Nifty is at 18.5 times, which is at the higher end of its long term valuation multiple.

The past 10 year’s average PE multiple has ranged between 17 times and 19 times. However, with the Nifty EPS of ₹1090 for FY25, the P/E multiple of less than two year forward is at 16 times, which looks more reasonable if a slightly higher investment horizon is considered.

Investment opportunity

For investors with an investment horizon of more than one year, current levels provide a decent investment opportunity. For a near term investment horizon, buy on dips should continue.

Historically, a 10 per cent fall from its recent highs offers a good investment opportunity to long term investors. Markets have historically fallen till 20 per cent also due to extreme fear and news flows. However, in general, markets do not stay at lower levels for long.

Therefore, it is prudent to start investing on a 10 per cent fall and at every subsequent fall from thereon.

Since the start of the year, 2023 is going to be a year of accumulation as volatility is likely to be higher with correction during the course of the year. Investors should focus on regular incremental buying on every minor dips from here on, the brokerage said.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.