Equity Markets See Sharp Sell-Off, But Attractive Valuations Signal Long-Term Opportunities – News18

Last Updated:February 13, 2025, 10:43 IST

Nifty 50 index is down close to 13% and Mid and small-cap indexes are down around 18% -20%; Mayur Shah explains what investors should do

Equity Markets have witnessed a sharp sell-off from October 2024 onwards, which has intensified from January 2025 in mid and small-cap stocks. After the budget, the sell-off started again and further intensified in the last 6 trading sessions. The correction which started with an initial slowdown in the economy with Q2FY25 results, extended with strong dollar and US Fed outlook on interest rates and Tariff war-related uncertainty, leading to a sharp sell-off by FIIs and outflows of money from Indian Equity markets.

Valuations which are factors of liquidity, sentiment, corporate earnings, and macro fundamentals has also become a concern in certain sectors, and stocks post slowdown in corporate earnings and tight liquidity found a reason to correct. The initial lower pace of capex from the government in the first 8 months of FY25 also led to liquidity tightening.

With uncertainty on US Inflation and interest rates and domestic slower than expected earning growth and liquidity challenges markets and lack of immediate positive triggers markets gradually went for this correction and consolidation.

Correction do get exaggerated due to lack of participation, Investors rebalancing in portfolios in favor of safe horizon and the leverage positions by traders also create further selling pressure in the market.

Nifty 50 index is down close to 13% and Mid and small-cap indexes are down around 18% -20%. Additionally, many stocks individually have fallen by 20% to 50% from their peak. Valuations have started to emerge attractive and below the 10-year average. More than 75% of the stocks are now trading below 200 Day Moving average based on the past couple of such readings suggesting we are highly oversold and close to bottom formation. Q3FY25 results season has been mixed, however, earnings are to improve in the first half of the calendar year 2025 backed by faster clearance of capex backlog of the Government, improved liquidity measure by government and RBI, band oost to discretionary spending with tax relaxation and better state and private capex under PPP model picking up.

Markets are always forward-looking.

Market Valuations Present Strong Long-Term Opportunities Amid Correction

Amidst many uncertainties after this correction, valuation in the market is giving a lot of opportunity for investors for long-term investors. Opportunity also lies for medium-term positional traders markets being oversold can take that as an opportunity. Post advance tax filing date of 15th of March liquidity situation would ease most of the monthly statistics related to IIP, PMS, Electricity consumption, Auto Sales, Cement dispatch, etc which will be out giving clarity on economic activity picking up leading to bottoming out of the market and base formation in place.

Written By: Mayur Shah, PMS Fund Manager, Anand Rathi Shares and Stock Brokers

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