Is it a good time to buy stocks, or will the markets correct further?

On the global front, analysts expect the 'higher for longer' narrative as regards interest rates to play out for some more time as leading global central banks remain in a wait-and-watch mode

It has been a topsy-turvy few weeks for the markets. While the S&P BSE Sensex has managed to eke out minor gains thus far in the calendar year 2024, the smallcap and midcap (SMC) indices on the BSE have risen over 7 per cent each during this period.

The markets are likely to remain choppy and rangebound over the next few months, say analysts, amid global developments and the events lined up back home. Investors, they advise, should not jump in to buy just now, as the months ahead will allow them to buy their favourite stocks a bit cheaper.

As a strategy, Andrew Holland, chief executive officer of Avendus Capital Public Markets Alternate Strategies, remains a ‘buyer on dips’ and expects the markets to correct in case global developments, especially with China, spring a surprise.

“The markets are already factoring in a Bharatiya Janata Party victory in the upcoming Lok Sabha elections in 2024. At the global level, developments in China are another factor that the markets will keep close tabs on. Any negative development can trigger a sharp fall in global equities. For someone who wants to invest for the medium-to-long term, the markets can provide an opportunity to buy at lower levels. Remain bullish on hotels, manufacturing, and infrastructure-related themes,” he said.

Among sectors, the S&P BSE Oil & Gas Index has been among the top performers in 2024, rising nearly 22 per cent during this period. A large part of the rally has been on account of the heavyweight Reliance Industries counter, which has gained nearly 13 per cent.

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On the other hand, fast-moving consumer goods and bank stocks have been investors’ least favourites in 2024, with both indices slipping up to 4.5 per cent on the BSE during this period.

“We see a lot of bubbles in many microcap and smallcap stocks. New investors are chasing these two market segments without much consideration for valuations. This is quite risky. A possible (bubble) burst in such overvalued microcap and smallcap stocks can impact the entire SMC segment due to a lack of liquidity,” warns Chokkalingam G, head of research at Equinomics Research.

Technical chartists, too, remain cautious at the current levels and expect the markets to drift lower amid volatility. The markets, according to Ajit Mishra, senior vice-president for technical research at Religare Broking, are lacking momentum and traction.

 

“The midcap and smallcap indices are likely to remain under pressure. The overall market is lacking traction and momentum. The National Stock Exchange Nifty50 Index can slip to 21,300 levels in case it closes below the 22,000 mark — a fall of nearly 700 points, or 3.2 per cent from the current levels,” he said.

‘Higher for longer’

On the global front, analysts expect the ‘higher for longer’ narrative regarding interest rates to play out for some more time as leading global central banks, including the US Federal Reserve (Fed) and the Reserve Bank of India (RBI), remain in a wait-and-watch mode before cutting rates.

As late as mid-November last year, markets, say analysts, were still pricing in some small possibility of a rate hike. But in December, this shifted to pricing in a first 25-basis-point (bp) cut by the March meeting. Thereafter, stronger incoming data, along with a pushback from Fed officials, has led markets to delay their expectations to a June rate cut instead.

“Markets have also sharply pared back the pace of rate cuts for 2024 (by the Fed), from expecting 168 bp of cuts in total in mid-January to just 84 bp currently. The January Federal Open Market Committee minutes confirm that the Fed remains highly attentive to inflation risks,” wrote Chetan Ahya, chief Asia economist at Morgan Stanley, in a recent note. He expects the RBI to cut rates by 25 bp in the second quarter of 2024 and then remain on pause until the fourth quarter of 2025.