1 out of 6 Nifty 500 stock falls over 20%; Time to worry or cherry pick?

Many quality small- and medium-cap stocks have become appealing buys, and the medium-to-long-term outlook remains robust due to economic factors, said G Chokkalingam of Equinomics Research.

Indian stocks have been on a slippery ground for the last one month. Equity benchmark indices - the BSE Sensex and the NSE Nifty 50 - declined around 7.5 per cent from their respective peaks of 85,978 and 26,277 hit on September 27, 2024. In the same context, the broader NSE Nifty 500 index has plunged almost 9 per cent.

 

The current downturn in equities is attributed to Q2 earnings disappointment, volatile geopolitical environment and selling by foreign investors. Prior to the recent fall, the NSE Nifty 50 index had surged up to 21 per cent thus far in 2024. In comparison, the Nifty 500 index has soared as much as 26.5 per cent. Thus showing relative outperformance both in times of gain and decline.

 

 

Amid the recent downturn, 1 in every 6 Nifty 500 stocks or as many 83 out of the Nifty 500 stocks have dropped more than 20 per cent from their respective highs, shows Ace Equity data. 

 

Many quality small- and medium- company (SMC) stocks have fallen anywhere from 15 per cent to even 25 per cent within a few weeks. Many quality stocks have become appealing buys, in our view. Medium to long-term outlook for the markets remains robust due to economic factors, said G Chokkalingam, founder and head of research at Equinomics Research.

   

Localized battles may continue in the Middle East which may be accepted by the markets like how they absorbed and lived with the Ukraine-Russia war. We believe that it is worth taking risk and slowly increasing the exposure to quality SMC stocks, Chokkalingam added.

 

In general, stock market traders tend to worry when a stock dips more than 20 per cent from its peak, as it signals a possible change in trend.

 

Kranthi Bathini, Director-Equity strategy, WealthMills Securities explains that a stock down more than 20 per cent from its peak, does not necessarily mean a bear phase. Market falling after a decent rally can be termed as an interim correction. One should be worried only in case; stocks continue to languish at lower levels for a period of more than 3 months. This could lead to a period of prolonged consolidation. 

 

Among individual stocks - Poonawalla Fincorp, Intellect Design Arena, Phoenix Mills, PNC Infratech, Vodafone Idea and IndusInd Bank were the biggest losers, down over 30 per cent each. Among others, HFCL, IFCI, BHEL, RITES, SCI, L&T Finance, Avenue SuperMarts, RBL Bank, InterGlobe Aviation, MRPL, RVNL, SAIL, Mahindra Finance, TTML, Oil India, SJVN, IDFC First Bank, GMR Airports, Delhivery and Suzlon were the other major laggards. 

 

Going ahead, markets are expected to witness stock specific action based on the recent corporate earnings. Stocks not supported by earnings and valuations are likely to underperform, adds Kranthi Bathini.

 

On the positive front, Amber Enterprises, Motilal Oswal Financial Services, Angel One, MCX India, CRISIL, Tube Investments and BSE were the star performers in the last one month.