Another 5-10% correction likely before market stabilises, says Abhijit Bhave of Equirus Wealth

Expert View: Abhijit Bhave, Managing Director and CEO, Equirus Wealth believes a 5-10% correction from current levels might be a fair expectation for stabilisation in the market. A strong earnings report card in the December quarter is what might bring some sense of relief in the market, he noted. Bhave also believes that mid-caps and small-caps have seen significant outflows due to valuation concerns, but their earnings trajectory remains robust. For long-term investors, this could be a good time to accumulate fundamentally strong, low-leverage companies with earnings visibility, he advised. Edited Excerpts:

Given the fact that the market is falling, where do you see it halting this sort of a move?

The current market correction is due to global uncertainties and domestic valuations catching up with reality. While it's challenging to pinpoint an exact level, markets often stabilise around valuation comfort zones. For India, historical trends suggest that a PE correction to long-term averages provides a psychological floor. Additionally, structural drivers like a strong post monsoon output, improving domestic consumption, policy support, and a recovery in capex could help stem the downward trend. However, a strong earnings report card in the December quarter is what might bring some sense of relief in the markets. A 5-10% correction from current levels might be a fair expectation for stabilisation.

In terms of a timeline, will this play out in a quarter or more or could it be for the better part of 2025?

We believe a lot has to play out over the next 6-9 months like the change of regime in the US, federal banks’ stance on interest rates, inflation dynamics and how the world battles the expected tariffs imposed by the Trump Administration. Domestically, earnings resilience will play a critical role. However, given India's structural tailwinds, any prolonged correction beyond mid-2025 seems unlikely, barring unforeseen global shocks.

While the broader market has faced significant downturns, the IT sector has shown remarkable resilience. Do you think this performance will continue?

Yes, the IT sector's resilience is expected to stay. Several factors contribute to this, such as robust global demand for digital transformation, rising deal sizes, and cost optimisation by global firms. India's IT sector is adapting to a new growth normal, driven by emerging technologies like generative AI and cloud adoption. The sector's defensive characteristic also provides stability amid broader market volatility.

What is the outlook for IPO activity, and what growth can we expect in the IPO market?

The IPO market remains an interesting space. While recent corrections may temporarily dampen enthusiasm, the long-term outlook remains positive. Sectors like fintech, green energy, and consumer tech are expected to drive IPO activity. Valuations are likely to become more realistic, with the focus shifting to profitability and governance. As market conditions stabilise, we could see renewed IPO momentum by mid-2025, with companies keen to capitalise on India's growth story.

Where do you see gold headed right now? Will it get its sheen back when we enter the new calendar year?

Gold remains a safe-haven asset in times of uncertainty. With global central banks nearing the end of rate hikes and geopolitical tensions still high, gold could regain its sheen in 2025. However, Donald Trump’s re-election and the subsequent reduction in market uncertainty led to a retreat in gold prices as investors shifted towards the strengthening U.S. dollar. Reduced geopolitical tensions, particularly in the Russia-Ukraine conflict, and the reversal of pandemic-induced gold holdings will further weigh on prices.

What is your view on the broader market correction? Do you advise accumulating mid-caps and small-caps?

The broader market correction presents selective opportunities. Mid-caps and small-caps have seen significant outflows due to valuation concerns, but their earnings trajectory remains robust. For long-term investors, this could be a good time to accumulate fundamentally strong, low-leverage companies with earnings visibility. A staggered investment approach is advisable to mitigate short-term volatility.

When do you see FPI selling stopping?

FPI selling is closely linked to global risk sentiment and dollar liquidity. Recent outflows are largely due to profit booking and a strong dollar. As the Federal Reserve reaches its rate peak and global liquidity improves, FPI flows could stabilise. Compared to other emerging markets, Indian equities have the lowest FII ownership at 17%. India’s structural growth drivers and any benefit from Trump’s tariff announcement will make it a favoured destination for FIIs.

One piece of advice for new investors.

Stay disciplined and focus on quality. Investing is not about timing the market but time in the market. Diversify your portfolio, avoid herd mentality, and prioritise consistent SIPs in equity mutual funds or ETFs. Always align your investments with your financial goals and risk appetite. Remember, volatility is an inherent part of equity markets, but patience and conviction can yield long-term wealth creation.

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.