With the BSE barometer Sensex cracking nearly 3,300 points and Nifty falling below 24,200 in two days of selloff, alarm bell are ringing on several retail favourite counters, as investors fear a bloodbath ahead.
On Monday, while markets across Hong Kong and mainland China were unfazed, others such as India, Japan and Korea fell up to 6 per cent, as concerns mount over a possible US recession. The fact that valuations at the domestic market are rich is making investors jittery. Analysts said any decent fall should make market valuations attractive. They are, however, in no hurry to buy stocks.
From Thursday's close of 81,867.55 to Monday's low of 78,580.46, the BSE Sensex has fallen 4.01 per cent 3,287 points in just two sessions. Nifty dropped 818.40 points or 3.27 per cent during the same period to hit a low of 24,192.50 today.
"Beyond the headline miss in job gains and the unemployment rate, the household survey indicated a rise in US job losses, typically a warning sign for a pending downturn. An unusual rise in temporary layoffs and evidence of a negative weather effect raise the possibility that the rise in job losses is just a blip, rather than the start of a worsening trend," Nomura India said.
This brokerage now expects the Fed to ease more quickly, with three consecutive 25bp cuts at the September, November, and December meetings from a risk management perspective.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said the recent rally in global stock markets was driven by consensus expectations of a soft landing for the US economy. This expectation is now under threat with the fall in the US job creation in July and a sharp rise in US unemployment rate to 4.3 per cent, he said.
"Geopolitical tensions in the Middle East also are a contributing factor. Another significant factor is the unwinding of the Yen carry trade, which is bleeding the Japanese market. The crash in Nikkei by above 4 per cent this morning is an indicator of the crisis in the Japanese market.
Vijayakumar said valuations in India, driven mainly by sustained liquidity flows, continue to be high particularly in the mid and smallcaps segments. "The buy on dips strategy, which has worked well in this bull run, is likely to be threatened now. Investors need not rush to buy in this correction. Wait for the market to stabilise."
Data showed Nifty EPS estimate for FY25 has been cut by 1.2 per cent to Rs 1,120 in the earnings season, largely owing to Reliance Industries and BPCL. FY26E EPS has also been reduced by 0.8 per cent to Rs 1,319 from Rs 1,330, as upgrades in Infosys, Coal India, Tata Motors, and Maruti were offset by downgrades in Axis Bank, HDFC Bank, ICICI Bank, and IndusInd Bank.
"Nifty is trading at a 12-month forward P/E of 21 times, at a 3 per cent premium to its own long-period average (LPA). Industrials and capex, consumer discretionary, real estate, and PSU banks are our key preferred investment themes," MOFSL said.
Nuvama said India’s valuations are at extremes, à la 2007. "At such valuations, five-year returns are likely to be subpar (