Has the market finally bottomed? Time to pounce?

While the Indian stock market's current correction raises valid concerns about valuations and future performance, it also presents potential buying opportunities for discerning investors. Image: Pixabay
While the Indian stock market's current correction raises valid concerns about valuations and future performance, it also presents potential buying opportunities for discerning investors. Image: Pixabay

Summary

  • Fear and uncertainty have gripped the market for some time, but recent indicators have sparked a flicker of optimism. Is now the time to seize potential buying opportunities, or is it prudent to remain on the sidelines?

India's stock market experienced dramatic swings in 2024. After reaching record highs, the Nifty 50 plunged nearly 11% from its September peak due to persistent selling by foreign portfolio investors (FPIs) in the following two months. The selling was driven by increased allocations to China and concerns surrounding muted earnings growth during the second quarter. A weakening rupee further dampened market sentiment. 

The market is currently showing some signs of recovery, rebounding roughly 4% from its trough. Mint explores whether this correction has presented attractive buying opportunities for some investors by alleviating concerns of an overvalued market.

An analysis of all NSE-listed stocks reveals that only 1% are currently trading at their 52-week high, indicating widespread declines from peak values. Nearly half are down more than 25% from their 52-week highs, while another one-third have declined between 10% and 25%.

“While the Indian stock market's current correction raises valid concerns about valuations and future performance, it also presents potential buying opportunities for discerning investors," said Atul Parakh, CEO of online investment and trading firm Bigul. “A careful analysis of individual stocks and sectors is essential, alongside an understanding of broader market conditions. Investors should balance their strategies between seizing opportunities presented by lower valuations while remaining vigilant about potential further declines in the near term."

Also read: Weak rupee dented dollar returns for already wary foreign investors in 2024

Vivek Sharma, investment head at Estee Advisors, added, “I always advise investors to avoid trying to time their entry or exit in the market and instead focus on systematic investing. This strategy not only helps sail through market volatility more smoothly by averaging the cost of investments but also less emotional draining."

Valuations remain high

Despite recent corrections, valuations remain elevated across the board. Our analysis further reveals that a majority of stocks in the Nifty 100, Nifty Midcap 150, and Nifty Smallcap 250 are trading above their five-year median trailing price-to-earnings (P/E) ratios. The Nifty Smallcap 250 has the highest proportion of such stocks (71%), followed by the Nifty Midcap 150 (66%)and the Nifty 100 (56%).

“India commands higher equity valuations primarily due to its growth potential. However, the market went through a period of froth as investors expected the growth momentum seen in 2022–2023 to continue into 2024, which didn’t materialize," said Anand K. Rathi, co-founder of MIRA Money. “There is still hope that growth momentum will return. While it may not match previous rates, it will likely be significantly higher than what global markets are experiencing."

Also read: Santa skips D-Street during second-quietest December in a decade

“I think there may be a bit more pain before things turn around. That’s why it’s better not to invest all your money at once. Consider allocating 50% now and the rest after evaluating key indicators such as Q3 results and the budget," Rathi added.

After a mass exodus in October and November, overseas investors returned as net buyers of Indian equities in December, with inflows totalling ₹15,446 crore. 

According to Sharma, the recent pullback due to FPI selling has moderated valuations to some extent. "But high valuations persist, particularly in the mid-cap and small-cap segments, which continue to trade well above historical median P/E ratios…While this concern is valid, sitting out of the market altogether is not a wise decision," he added.

Also read: Mint Primer | Happy New Year: How stocks may swing in 2025

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