Markets are likely to continue with sluggishness till the SEBI scrutiny is ongoing and Mutual Fund stress test results are out.
“Despite sharp sell-off, valuations are still a little stretched in mid- and small-caps thus warranting for more pain,” said Sneha Poddar, Assistant Vice President of Retail Research, Broking, and Distribution at Motilal Oswal Financial Services.
Consistently sticky inflation leading to uncertainty in terms of interest rate cuts coupled with extremely high valuations despite below-average Q3FY24 results could lead to a further fall in Indian indices in the coming days. “BSE Sensex on intraday looks oversold but a bounce back till Daily resistance of 73342 should be used to sell for lower targets of 72081 & 70900 in the near term,” said A R Ramachandran, Co-owner of Tips2trades. The smallcap index Nifty Smallcap looks very bearish yet oversold with the next support at 14091. Also, the Nifty Midcap looks bearish with strong resistance now at 47549. “Overall, any uptrend should be used to exit previous buy positions,” said Ramachandran.
Smallcap 250 Index took a correction of approx 13% from its high on 7th Feb as fundamental valuations had been on the higher side as compared to the earnings. Similarly, the Midcap 150 index also saw a correction of 7% from its high, touched in February, which seems a healthy correction so far in both the indices. In the last 3 days, both the indices were at a level of December month closing, said Narender Singh, smallcase Manager and Founder of Growth Investing.
The Nifty 50 index, however, stood steady but caved into overall selling pressure, leading to a much broader panic selling seen based on valuations, regulators hardened stance, and the overall market getting tired at the top. Based on the observations, markets may take a pause before deciding to either reverse or continue their downward drift.
There is room for the broader market to correct more since the valuations continue to be elevated. Here onwards, investors should focus on the largecaps and quality midcaps. The turbulence in the market will give cherry-picking opportunities, said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. “This turbulence will separate the men from the boys,” he said. High-quality private sector banks and the leading names in capital goods, telecom, and autos can be accumulated in a calibrated manner.
However, taking a bit different stance Narendra Singh said that it seems indices may close in green on Thursday. “Fundamentally, smallcaps and midcaps are most likely done with major correction with such a fierce selloff. It should be a relief rally or pause before the next move forward,” he said.
“It is important to understand that India’s macro fundamentals continue to be good and the bull market is intact,” said Vijayakumar.