Use correction as opportunity to buy: Analysts

Indian stocks slid for the sixth consecutive trading day on Wednesday tracking weak Asian and European cues amid global nervousness over US President Barack Obama’s bank reform plans and monetary policy tightening in China. The strengthening US dollar, perceived a safe haven for risk-averse investors, added to the woes of risk assets like equities.

Indices saw a major cut and India’s benchmark index, the National Stock Exchange’s 50-share Nifty, plummeted over 150 points to end the day at 4,853, its worst single-day fall since August 2009. The markets also recorded their highest volumes ever, in part also because of futures and options expiry on Thursday.

“The trend turned negative once the Nifty broke the 5,200 level,” said Technical Analyst Sudarshan Sukhani. “Short-term traders are advised stay on the sidelines and be patient. They will get better prices.”

Fundamental analyst Satish Betadpur, Managing Director of IIR Group PLC, said investors should “let the dust over the Obama and China stories settle down before coming in to buy”. “Until that settles, no matter how good earnings are in our part of the world, markets are going to be weak,” he said.

“The market had run up too fast,” said Rajen Shah of Angel Broking. “We recently cautioned our clients to book about 25% of their profits.”

‘Valuations are a bit more comfortable’

Betadpur of IIR Group said, as a result of the correction, select large-cap stocks were now starting to look attractive.

The Nifty has shed 421 points in six trading sessions, a fall of about 8%.

Betadpur recommended investors shift from mid-cap stocks — considered high-beta — to frontliners as the valuation gap between them was narrowing. “There are large-caps stocks in pockets like infrastructure and banks that we would like to own,” he said.

In the two sectors, investors could look at JP Associates and Axis Bank, he said. “JP Associates has posted reasonable earnings but has corrected for no fundamental reason. If you believe in the infrastructure space, that is the company to own. Similarly, Axis Bank is well-run bank but is correcting along with the others,” he said, “Maybe we don’t enter a full position right away but we definitely start building positions in those names.”

Asked his view on construction and engineering giant Larsen & Toubro, which has seen a sharp sell-off after posting dismal third-quarter results — the company attributed it to execution delays but said its order book was intact — Betadpur said, “It is a stellar company, which has had a little bit of a hiccup. If it corrects a little more, we get involved in that space.” He added he was positive on the overall infrastructure sector.

Shah of Angel Broking, however, said the better bargains were still in the mid-cap space. “There are several companies that posted exceptional December results and which are quoting at 4-5 price-to-earnings (P/E) ratios.”

The Sensex — currently at about 16,200 — could go down to 15,000 levels, Shah said, but recommended investors to buy companies if they had conviction in their fundamentals.

“If you feel this is a stock, which I like at this level, just go ahead and buy it. It could go down 10% from here as well but if it’s a good company with good fundamentals, it’s going to be rewarding.”