The month of March turned out to be tough for the stock market investors as they were caught in a perfect storm of geopolitical concerns, crude oil shock and heavy foreign investor selloff. As the Nifty 50 witnessed its worst monthly fall in six years last month, several index stocks declined 15-20%.
However, even though the headwinds remain in place, the valuation reset has improved investor confidence. The Nifty has risen 8.23% on a month-to-date basis and remains on course to snap its four-month-long losing run.
Earlier this month, DSP Mutual Fund in its strategy report said that it is shifting from a conservative to a constructive view on the Indian stock market, as the correction has brought valuations closer to long-term averages.
Large-cap valuations are now near long-term averages (~18–19x). Though not cheap, they are no longer expensive.
“The index is between fair and average valuations. It is prudent to start raising equity weights while the market is in a downtrend and reaching towards fair value,” it stated. DSP MF added that India’s valuation premium vs global peers has corrected, improving relative attractiveness, while remaining a high-quality market, now available closer to fair value rather than at a premium.
Signs of buying are already visible. Along with the recovery in the index, the worst-performers of the last month are also seeing buying action.
Shifting Trends
According to data from Ace Equity, a total of 15 Nifty 50 stocks lost over 15%. The majority of these names belonged to the financials, auto and banking sectors. Meanwhile, the lone aviation stock in the index, InterGlobe Aviation, also emerged among the top losers.
The impact on auto, bank and other stocks from the US-Iran war isn’t straightforward. Rather, it’s linked to the crude oil story. Given the massive jump in Brent crude oil prices to above $100 per barrel and India’s status as a major crude importer, investors panicked about the possible impact on inflation and growth.
Higher inflation could push the Reserve Bank of India (RBI) to hike the repo rate, which doesn’t bode well for rate-sensitive sectors like auto and banking counters. Furthermore, expectations that higher fuel prices could reduce demand for automobiles also weighed on the auto pack.
Tata Motors Passenger Vehicle was the worst-performing Nifty 50 stock as it declined by 22.59% in March. However, it has recovered almost all of its losses and was last up 22% month-to-date as of 22 April. Maruti Suzuki, Eicher Motors, and Bajaj Auto stocks also plunged sharply, 11-17%.
From the banking and financials space, Axis Bank (down 16%), Shriram Finance (down 19%), SBI (down 18.50%), HDFC Bank (down 17.6%) and Bajaj twins (down 18-19%) were the most impacted. However, all these stocks have now recouped losses and are trading 9-18% higher.
L&T and Adani Enterprises have also staged a smart rebound, while Tata group stock Trent is the best performer, with an up to 35% jump this month. The company recently announced a bonus issue along with strong quarterly earnings.
Commenting on the recovery, Harshal Dasani, Business Head at INVasset PMS, said that April rebound is less a clean change in fundamentals and more a mix of positioning, valuation comfort and relief on the macro front.
“After the March selloff, many of the worst Nifty 50 laggards were trading at far more reasonable multiples, which invited selective bargain hunting. The rebound has also been helped by hopes that policy support will cushion growth, while stronger April macro data have reduced near-term recession fears,” he added.
While there is bottom fishing, he doesn’t believe it is a prudent strategy. He advised selective accumulation where balance sheets are strong, earnings risk is manageable, and valuation has corrected faster than fundamentals.
Disclaimer: This story is for educational purposes only. 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 making any investment decisions.
