Mood of the Market: Edgy Indian stocks likely to remain rangebound, eye Lok Sabha elections

Indian markets, edgy and volatile all of March so far, could remain so in the coming weeks as traders note the absence of bullish cues and investors work the math on valuations against the backdrop of rising regulatory oversight on bubbling stock prices.

Stocks are facing a double whammy of negatives —  on one side are a determined regulator Securities and Exchange Board of India bent upon injecting sanity to high-flying stock prices especially in the booming small-cap and mid cap sectors and the tax man — keen to partake its share of profit via advance tax payments. Both put together have shaved off 11 percent from Nifty’s Small Cap 100 Index and 6.5% from the Nifty Mid Cap 100 index. The carnage on some of the once high-flying, high-beta low ticket PSU stocks is in the vicinity of at least 20-25 percent. The main bluechip Nifty has also dipped 2% from its most recent record peak of 22,525.

“This is now a market where you do not chase (momentum) but buy into the correction,” Mahesh Patil, Chief Investment Officer at Aditya Birla Sun Life AMC, told Business Today. “Keep expectations moderate and dial back on risk.” Mumbai-based Patil advocates rebalancing of portfolios in favour of large caps by putting fresh investments in flexi-cap funds. 

Deep-pocketed Patil manages 3.32 lakh crore rupees in equities and debt and remains confident of India’s allure as a relative outperformer in 2024. The benchmark Nifty has compounded 17.1 percent in the past 3 years, placing it among the upper quartile of global indices. Patil bets on top private banks and stocks in the industrials, power and infrastructure sectors to deliver above average returns over the next medium term.

Patil expects earnings to compound between 15-18 percent on large caps and market returns to be in line with them. He explains India’s strong macro fundamentals, rising domestic flows into equities and a positive surprise on GDP growth to be the reasons for his continued enthusiasm for equities

RUDE CHECK

Traditionally March has been an uneasy and uncomfortable month for Indian bulls as bouts of heavy selling are accompanied by rising volatility. Investors trim portfolios to raise funds for advance tax payments and harvest losses to offset short term gains. Adding fuel to fire was SEBI’s nudge to mutual fund houses to run stress tests on their midcap and small cap portfolios which injected widespread panic on Dalal Street.

As sanity returns to stock prices, it’s politics and electioneering that takes over sentiment on Dalal Street. India, the world’s largest democracy, goes to polls between late April and all of May. Results will be announced on June 4th and the market believes the current dispensation led by Prime Minister Narendra Modi will score a hattrick and return to power.

And Mr. Modi, addressing India Today’s Conclave over the weekend in New Delhi, said he had already earmarked an economic roadmap for the next five years with sectors such as railways, waterways, defence exports, infrastructure, space and solar industries occupying prime space.