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