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  • Nilesh Shah

    MD, Kotak AMC
    Shah has over 25 years of experience in capital markets. He has managed funds across equity, fixed income securities and real estate. He has studied at the Institute of Chartered Accountants of India. Shah has also co-authored a book - 'A Direct Take'. His dream is to go backpacking with his better half some day.

Half of Nifty500 stocks down 30% from peak: How to handle them?

Risks are balanced currently. Good domestic economy is offsetting overseas pressures.

Aug 08, 2018, 01.20 PM IST
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The correction in the smallcap and midcap segments has come at an appropriate time.
The monetary policy is now behind us. It wasn’t much of a surprise. A 25 bps hike had already been priced in by the debt market. With CPI inflation on an upswing, this was a foregone conclusion.

CPI has risen by more than 260 bps since July 2017, mainly due to a 40 per cent hike in Brent crude prices during the same period. Rising oil price has always been a concern for the Indian central bank.

As a net importer of crude oil, the price rise directly impacts the current account deficit and the rupee value. At that, the price absorption either leads to general inflation or to a higher fiscal deficit. Until now, the prices have largely been passed through, but as the general election year closes in, the choices may become different.

The reason for this rise in crude prices is rooted in global causes, primarily due to the US-Iran political disputes and also due to the US–China trade war. US – Iran differences are political in nature and will require a political resolution. But till that time, it has impact on Indian energy prices.

Having said that, crude prices are beginning to stabilise, the crude supply is likely to increase and there are indications of negotiations (US-Iran). If these things go through, the crude price risk may even weaken swiftly.

Parallelly, the trade war is beginning to impact the global economy. The US has levied tariffs on Chinese imports amounting to $50 billion. China had countered by imposing tariffs on US imports of equal amount. Now, as the rhetoric heats up, the US has hinted at fresh tariffs on additional $200 billion worth of Chinese imports.

The question is, will China follow suit? Chinese markets are tumbling and their economy is slowing down with rising corporate defaults. If additional US tariffs come in, the impact on their economy with already high debt leveraging may be significant. This is risk to the global economy and is leading to rally in dollar value.

As other currencies fall, the rupee has come under double-whammy. Year to date, the Indian currency has been one of the worst performers globally.

But these events can also be an opportunity for India. With major taxation reforms in place, India needs to put her physical and bureaucratic infrastructure in place to emerge as the alternative manufacturing destination.

Good news is that there is massive investment in infrastructure improvement. Interiors and cities are being connected rapidly. Markets and manufacturers are being brought closer. This has seen sizeable off take in commercial vehicles, air transport and general uptick in manufacturing. Credit off take is now in the upwards of 12 per cent, indicating rising corporate investments. Majority of the indicators suggest the Indian economy is growing. These are good signs. It means that Indian economy will be able to enter a new phase of self-sustaining growth for a long term.

Thus the risks are balanced currently. Good domestic economy is offsetting overseas pressures. But we may see the market swing from end to end with intermittent volatility. The market may be suitable for long-term investors to go for value-based buying.

The correction in the smallcap and midcap segments has come at an appropriate time. In Nifty500 index, there are almost 214 stocks that have fallen by 30 per cent (or more) from their 52-week highs. There are around 112 such stocks that have declined by more than 50 per cent from their highs. And this is just the Nifty500 figures.

The fall in the broader smallcap and midcap market may be even more. Thus, the market is rife with value buying opportunities.

But for investors, who do not have access to solid stock research, a well-managed fund that has a proven track record through the entire business cycle and not one or two years should be a better option.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of

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