New Delhi, March 26 While the headline correction in the markets in March appears moderate, there are a substantial number of stocks that have been significantly affected, Emkay Institutional Equities said.
While it is not the most severe post-Covid correction, the pace at which it has unfolded has been disruptive. In particular, energy, real estate, and materials sectors have been notable underperformers, the analyst said.
The correction observed in March can be attributed to inflated valuations and concerns regarding liquidity within small and mid-cap funds and stocks.
The brokerage maintains its stance of Nifty to remain at 24,000 level. Emkay expects the market to rebound in 3-6 months, when SMIDs (Small and Mid Caps) would start to outperform again and the ‘hide in large-caps’ trade would unwind.
There are multiple triggers for the bounce back in 1-2 quarters such as the anticipated victory of the NDA in the forthcoming Parliamentary elections (June-24); The enactment of the initial reform-focused budget by the new government (July-24); and monetary stimulus from both the Federal Reserve and the Reserve Bank of India (July-24), it said.
The current rally in SMIDs is primarily driven by a shift in India's economic growth trajectory from consumption and services towards manufacturing and investment, the brokerage said.
This shift has resulted in a redistribution of the incremental profit pool away from sectors such as banks, fast-moving consumer goods (FMCG), and Information Technology (IT), which are dominant in the large-cap universe. Conversely, manufacturing sectors, which are predominantly composed of SMIDs, have played a significant role in propelling the market's rally.
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