Over 2,000 stocks in red: Is it the right time to buy these?

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More than 2,000 stocks in the broader market have witnessed some selling pressure among the ongoing consolidation in the midcap and smallcap stocks. After rallying up to 200% since March 2020, the BSE Midcap and Smallcap indices have declined 0.31% and 3%, respectively, on a month-to-date basis till August 26. However, market analysts believe that the correction in select stocks provide an opportunity to lap up quality stocks. Among the laggards, Ujjivan Financial Services declined 33% to Rs 160.15 in August so far. Other companies like Ujjivan Small Finance Bank (down 32%), Deepak Spinners (down 31%), Sadbhav Engineering (down 31%), Centrum Capital (down 30%), Vodafone Idea (down 29%), Indbank Merchant Banking Services (down 28%) and Quick Heal Technologies (dow 28%) have also seen their scrips going south.

Expert view

Commenting on the domestic equity market, VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services said, “Markets appear tantalizingly poised with the possibility of a swing in September. This can be on the downside if the trigger comes from a hawkish Fed speak from the Jackson Hole symposium. Covid cases rising, though slowly, too can turn out to be a dampener. The elephant in the room is the sustained FII selling which touched Rs 1,974 crore in the cash market on August 26.”

He further added that it would be difficult for retail and mutual funds to absorb the selling from FIIs, which might aggravate if the message from the Fed chief tonight is hawkish. Risk-reward appear to be not on the side of bulls.

The benchmark equity indices BSE Sensex and NSE Nifty have advanced over 5% during the same period. In recent days FMCG has emerged as a pillar of support to 50-share index with HUL, Nestle, Britannia and Tata Consumer emerging strong.

“While this sector rotation is keeping the Nifty strong the pain in the broader market continues with mid-and small-caps bleeding this month. This removal of froth is desirable and will make the broader market healthy. It would be good to lighten positions ahead of the Fed message. Investors may remain invested in largecap IT which is the strongest pillar of this market, the top names in FMCG, high-quality financials, pharma, chemicals and construction-related segments. Extreme care should be exercised in committing additional money at this stage in this richly valued market,” Vijayakumar said.

Digispice Technologies, Inox Wind, Future, Retail, Strides Pharma Science, Zee Media Corporation, DCB Bank, Sinclairs Hotels, Subex, Bajaj Hindusthan Sugar, HCL Infosystems, Rain Industries, Steel Authority of India, IDFC, Jaiprakash Power Ventures, Angel Broking, Aditya Birla Money, Aarti Drugs, Paushak, Sunteck Realty, Amara Raja Batteries, Jindal Stainless, Shyam Metalics and Maruti Suzuki India have also lost more than 5% this month.

Stocks to buy

Brokerages are bullish on a couple of stocks that have witnessed some selling pressure in the recent past. For instance, Edelweiss Securities has a ‘Buy’ call on SAIL with a target price of Rs 180. The brokerage is also positive on Jindal Stainless with a revised target price of Rs 220 and Shyam Metalics with a target price of Rs 580.

On the other hand, Progressive Share Brokers has a ‘Buy’ call on Pondy Oxides and Chemicals with a target price of Rs 525. “The demand for the metals provides the opportunities to see some more financial strengthening of the company as the business will grow with volumes in the upcoming future,” the brokerage said. Shares of the company have declined more than 3% to Rs 413 in August till date.

Emkay Global Financial Services is positive on Aditya Birla Fashion & Retail with a target price of Rs 250. “After the recent 15% correction, ABFRL trades at 22 times and 18 times FY23E and FY24E EV/EBITDA, a substantial discount to peers, despite a healthy 23% EBITDA CAGR over FY20-24E. In our view, faster recovery trends and aggressive expansion plans make Aditya Birla Fashion an attractive play on recovery,” the brokerage said.