Dalal Street In Detox Mode After A Binge, Say Market Veterans

Indian investors have extended losses beyond Rs 14.6 lakh crore as the stocks fell for the sixth straight day. While the ongoing Israel-Gaza conflict to U.S. Treasury yields breaching 5% caused volatility, market veterans told BQ Prime that global factors only acted as a trigger for a cleanup in a frothy market.

"Valuation excesses, particularly in mid- and small-cap stocks, are being corrected in this selloff," said Manish Chokhani, director, Enam Holdings. The selloff gives rise to "some very good entry points" in select areas like banking, he said.

The broader markets have run up this year. The Midcap 100 has rallied nearly 20% year-to-date, while the Smallcap 100 has gained nearly 25%.

"In the last few months, we have seen 'kachra' stocks outperform quality. Donkeys can outperform horses for a while, but not for long," said Nilesh Shah, managing director, Kotak Mahindra AMC. However, every correction is a great buying opportunity for long-term investors, he said. 

Those buying opportunities need to be calibrated, though. "This remains a buy-on-dips market, but you need some dry powder in a market like this," says Nilesh Shah, managing director and chief executive officer at Envision Capital. Shah finds the most potential in "the three Cs", namely credit, consumption and capex.

According to Chakri Lokapriya, managing director and chief investment officer at TCG AMC, markets are fundamentally looking strong. "Profits are being booked on stocks that ran up fast," he said. "We will buy if there is any further weakness."

The fundamental strength of the Indian markets can be gauged from the decent set of quarterly results so far and the hope that the third quarter will see a boost in consumption because of the festive season.

One key factor to watch is if the U.S. benchmark yield cools.

"Investors need to watch for any signs of weakening US inflation or the economy that could potentially trigger a reversal of stance by the Fed on interest rates," said Vijay Chandok, managing director at ICICI Securities.