As markets head for correction in near term, go for IT stocks, steer clear of oil

Experts say that the market is unlikely to show upward movement and will continue to remain choppy, mainly on account of the election year.
For representational purposes (File | Reuters)
For representational purposes (File | Reuters)

NEW DELHI: When asked about the secret of his success, stock market tycoon Warren Buffet once said: “The secret lies is deciding when to enter and when to exit.”Amid uncertainty over weak global cues, weakening rupee, high crude prices, conflicting forecasts on market and an election year, retail investors are confused which way to head.

Experts say that the market is unlikely to show upward movement and will continue to remain choppy, mainly on account of the election year.“The risk reward for Indian equities is less favourable,” said analysts at Golden Sachs in a report last month downgrading Indian stocks for the first time. 

“The key reasons for our less optimistic views include, among others, stretched valuations, multiple macro headwinds in the near-term and election event risks,” the report said, raising doubts over any future rally or headwind profits.

The recent IL&FS crisis and the failed attempt to arrest the tumbling rupee and high oil prices had already cast a gloom over oil stocks, eroding Rs 1.25 lakh crore in its market cap. Analysts see further correction.

“The market will see further correction in the coming days. So, retail investors need to pick and choose. Also, certain sectors like oil needs to be avoided, given the margin pressure. As far as rupee depreciation is concerned, it’s time to invest in good IT stocks,” an analyst with Angel Broking said. 

Last week, Indian markets remained under a heavy selling pressure throughout. After the government asked the oil companies to absorb the cost of Rs 1 per litre, RBI monetary policy committee popped a surprise keeping its key rates unchanged. 

The Rupee breached 74, and as a result, the Sensex lost 1850.15 points to close at 34,376.99, while Nifty shed 614 points to close at 10,316.45. India’s equity market has sunk below the $2 trillion value for the first time since August 2017.

“The equity market outlook has taken a beating given degradation in the quality of debt, redemption and heightened risk aversion by investors. Trend is likely to be negative at least in the near-term till the financial market stabilises. Key data like bond yield, INR, oil prices, liquidity and equity valuation has to normalise, which may take some more time,” said Vinod Nair, Head of Research, Geojit Financial Services.

However, if investors are looking to enter the market, analysts suggest waiting for some more time as stock valuation are still high and not so attractive.“Next week will give some direction. We see market correcting to 33,000 and further to 30,000 over three to four months. Then one can go for picking good quality blue chip stocks,” suggested an analyst with HDFC securities.

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