Diwali 2024 Muhurat trading: The Indian stock market took a sharp downturn in October, ending its multi-month winning streak. After a steady six-month climb, the BSE Midcap index has slipped, down by 7 per cent in October. The BSE Smallcap index, following a four-month winning streak, has dipped 4.5 per cent. Meanwhile, the Sensex, after four months of gains, has also lost some ground, dropping by 6 per cent.
Despite recent turbulence, the Indian market is closing Samvat 2080 on a high note. The Sensex has surged 22 per cent, while the BSE Midcap and Smallcap indices have soared nearly 40 per cent since last Diwali.
Midcaps and small-caps outperformed in Samvat 2080 primarily due to retail investors' support amid the solid growth of the Indian economy.
“Heavy inflows into small and midcap funds, PMS, and AIF (alternative investment funds) led to small and midcap stocks doing well from March 2024 lows to make a peak in September 2024,” said Deepak Jasani, the head of retail research at HDFC Securities, pointed out.
"Desire to earn supernormal returns led many retail and HNI (high-net-worth Individual) investors into these categories of stocks even as the large-cap stocks did well, boosted by FPI inflows. Risk appetite globally was high, leading to expansion of valuations and stories being generated in these categories," said Jasani.
Rahul Jain, President and Head of Nuvama Wealth, told Mint that "India's strong growth resilience has backed the rally in an uncertain world.
"India was one of the few markets to witness high-teens earnings growth led by domestic cyclical like banks, autos and industrials. The year was marked with solid inflows through SIPs - which is very encouraging and ensures that domestic participants enjoy the fruits of wealth creation," said Jain.
Additionally, major factors supporting the domestic market have been political stability, consistent policies, and the government’s focus on capital expenditure—all of which have strengthened investor confidence in India’s long-term economic growth.
"It was a year with little or no turbulence on the macro front. Global rates were paused; there was no major geopolitical event, and domestically, the policy was quite clear, focusing on capex," Jain said.
Apart from domestic macros and corporate earnings, the US election in 2024, the Fed and RBI's interest rate cut trajectory, geopolitics, and inflation-growth dynamics will shape the Indian stock market in the new Samvat.
Shlok Srivastav, Founder and COO of Appreciate, underscored how the Indian stock market is witnessing an interesting time.
"Today, we have a front-row seat to a global political theatre rapidly spiralling into unpredictability, war-mongering, and factionalism, which seems near unprecedented. On the other hand, the Russia-Ukraine conflict seems interminable. The Gaza conflict has taken a new threatening overtone, almost verging on nuclear brinkmanship," said Srivastav.
"There are whispers and murmurs on the global stage that US-Chinese tensions risk a dangerous spillover over Taiwan. And if all these simmering strains weren’t enough, there is the looming US Presidential election in an America with a deeply divided electorate," Srivastav said.
However, we should avoid overplaying the doom and gloom as there are bright spots in the world as well.
"The US Federal Reserve has categorically pulled off a soft landing. The global economy seems, surprisingly, resilient, and the Indian stock market seems to be nothing less than buoyant despite the recent shakedowns in the domestic market," Srivastav said.
Srivastav recommends retail investors consider booking profits and sitting out the current spell of market volatility.
"Value discovery trades will be open as macroeconomic and geopolitical disturbances play out. As market pessimism becomes pronounced in the coming quarters, there will be more chances to pick up blue chips at cheaper valuations in the pharmaceutical, banking, and auto space," said Srivastav.
We consulted experts on their midcap and smallcap strategies for the new Samvat year. Here’s their insight.
Mid and small-cap stocks have experienced a sharp correction since the market began to decline from its highs of 26,000/85,900.
Many of these stocks were trading at high valuations that got hammered, contributing to the bearish sentiment in the mid and small-cap segment.
In October, the Nifty/Sensex index fell by 8 per cent, while stocks in the mid-to-small-cap segment declined between 20 per cent and 50 per cent.
Historically, when such situations arise, we tend to see a strong rebound in mid and small-cap stocks once the market stabilises at a major support level.
We believe this recent decline may be reversing, but to confirm a new rally, we need to see more consolidation or positive news regarding the domestic economy.
Devang Kabra, Partner & co fund manager, Wallfort PMS
In this new Samvat 2081, mid and small-cap stocks universe presents more challenges than opportunities.
Last Samvat, the winner investors had the most concentrated capital allocations. This Samvat, smart stock picking skillset of portfolio managers / investors will create a difference.
With an increasingly complex global backdrop, including heightened geopolitical tensions and a potential world war brewing, volatility in stock prices and potential drawdowns are expected.
In such uncertain conditions, the depth of analysis into each stock, its industry, and the reputation and integrity of its promoters becomes more crucial than ever.
Success will Favor those who invest with thorough, fundamental insights and conviction rather than investing on hearsay.
For existing investments, review the existing portfolio frequently and revisit all research going behind the investments. This reinforces the conviction of holding the portfolio through boring drawdown and flat periods. Basically, one has to survive the storm and return to calm waters – one day at a time.
Investors who do not have the time or inclination to do all this should choose a professional portfolio manager, mutual fund, etc., to protect their capital and manage their money instead of getting into direct small and midcap investing.
Samvat 2081 would commence cautiously as key states like Maharashtra and Jharkhand would go into an election in Nov’24, followed by Delhi in Feb’25.
The US presidential election will also take place in November and will be a key event for global markets.
Following the US Federal Reserve’s rate cut of 50 bps in its latest meeting, the RBI is also expected to start its rate cut cycle back home in the next few months.
On the other hand, after four consecutive years of healthy double-digit growth, corporate earnings are moderating due to pressures from commodities and fading tailwinds from BFSI asset quality improvements.
Thus, markets appear to be experiencing a genuine tug-of-war between the headwinds and tailwinds.
Despite a high base and strong run-up in the last 2 years, Indian markets will likely continue to deliver steady returns in Samvat 2081.
Any sharp correction in mid and small-cap due to global headwinds and stretched valuation should be used as an opportunity by long-term investors to accumulate quality stocks.
Also, in this uncertain global environment, one should focus on sectors and stocks that provide high growth and earning visibility at a reasonable valuation.
For Samvat 2081, we expect sectors linked to domestic structural and cyclical themes to do well. We are positive on sectors such as financials, consumption, industrials, real estate, technology, and healthcare.
For the new Samvat, one must be careful in the small and mid-cap space. In the last 18 months, we have seen a good improvement, resulting in a frenzy in this space.
We are seeing post-Q2FY25 numbers. If earnings are even slightly disappointing, the stock will correct by 20-30 per cent in a matter of days.
Going forward, the new Samvat will be very stock-specific. One sector we like in terms of valuations is private sector banks over the next 18-24 months.
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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.
