Wait and Watch' Over 'Buy on Dip': Experts Advise Amid Global Uncertainty

The 'buy-the-dips' strategy, though successful in the past, may not be advisable in the current climate of heightened global market uncertainty, warn market experts.

The recent global market sell-off began last week when US investors offloaded technology shares due to worries about overvaluation and slow earnings growth. The decline worsened with the Bank of Japan's interest rate hike and rising US unemployment data. The higher rates in Japan are prompting global money managers to liquidate assets acquired through yen borrowing. Meanwhile, weak US jobs data has raised fears of an economic slowdown.

Adding to the complexity are geopolitical tensions, with Iran, Hamas, and Hezbollah threatening retaliation against Israel for the assassination of Hamas' chief and Hezbollah's military leader.

This turmoil is set against a backdrop of pricey valuations, with the Nifty trading at a 12-month forward P/E of 23 times, versus its 10-year average of 17.49%.

Market veteran Ajay Bagga foresees more selling pressure but believes this dip might be a temporary glitch in a longer-term bull market.

"The correction offers a chance to reassess risk appetite and asset allocation," he commented, adding, "If the market structure remains intact, we could witness a swift recovery. The risk of staying out of the market is greater than that of enduring a short-term drop in portfolio values. Stay invested."

Unmesh Sharma of HDFC Securities Institutional Equities (HSIE) suggests investors wait until the situation stabilizes before buying shares. "India's long-term outlook is positive, but global uncertainty must diminish first," he said. For those looking to invest, he recommends prioritizing safe havens like consumer staples, pharmaceuticals, select IT stocks, and large banks.

Benchmark indices Nifty and Sensex have gained around 10.5% so far in 2024, with small and midcap indices rising by 19% each.

Tanvi Kanchan, Head of UAE Business & Strategy at Anand Rathi Shares and Stock Brokers, sees this sell-off as short-term volatility driven by profit-taking, not indicative of long-term panic in Indian equities.

"For those entering the equity market, a staggered approach during volatile periods might be wise," she advised. According to Bagga, strong domestic liquidity could provide a safety net for Indian markets amid worsening global sentiment, similar to post-election results in June and the Union Budget in July.

However, continuous inflows into domestic mutual funds, portfolio management service schemes, and alternate investment funds have inflated stock valuations, especially in the mid and small-cap segments.

High valuations often result in sharp declines when unexpected events occur, as seen with current US recession fears and Middle Eastern geopolitical tensions, noted V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

"Investors should wait for market stabilization before making new investments. Fairly valued large caps and defensive sectors like FMCG and pharma are advisable once the market settles," Vijayakumar told Moneycontrol.

Traders and investors should wait for better entry levels, advised Santosh Meena, Head of Research at Swastika Investmart Ltd. "Our market outlook remains bullish, but the potential for a significant correction suggests investors should consider taking profits where valuation concerns exist," he added.