Nifty Down 14% From Peak: Is the Indian Stock Market Oversold? Experts Share Insights on the Next Big Sectoral Rally
Nifty Down 14% From Peak : The Indian stock market has been under severe selling pressure since October last year, with benchmark indices witnessing sharp corrections. The Nifty 50 index has fallen over 14% from its all-time high of 26,277.35, which it hit on September 27. The broader Nifty 500 index has suffered an even steeper decline, dropping 17% from its peak.
Multiple factors, including heavy foreign capital outflows, weak corporate earnings, and slowing domestic economic growth, have contributed to this downtrend. The Nifty 50 is now on track for its fifth consecutive monthly decline, the longest such streak since 1995.
Is the Indian Stock Market Oversold?
As the market struggles to recover, investors and analysts are divided on whether it has reached oversold levels or if more correction is due.
The Case for an Oversold Market
Ajit Mishra, SVP of Research at Religare Broking, argues that the market is indeed oversold. However, he attributes the continued weakness to rotational corrections in key sectors.
“Markets are certainly oversold, but the rotational correction in key sectors limits the rebound and lowers the index with every passing week. A decisive break below 22,500 in Nifty could extend the decline toward 22,000. To reverse this trend, the index must reclaim and sustain above 23,000,” Mishra said.
Devarsh Vakil, Head of Prime Research at HDFC Securities, also sees signs that a market bottom may be near.
“Macroeconomic indicators suggest that the current softness in earnings growth may soon ease. The worst of the price deterioration appears to be behind us,” said Vakil. He expects sectoral rotation to drive the next phase of the market cycle, with select stocks rebounding as their earnings improve.
Is the Market Still Expensive?
Despite the steep correction, some analysts argue that Indian equities remain expensive.
“If we ask if the market is oversold, I would argue it is not. The bull run over the last five years has led to stretched valuations for many companies. Even after the recent correction, a significant number of stocks remain overvalued,” said Abhishek Jain, Head of Research at Arihant Capital Markets.
Jain pointed out that around 60% of Nifty 500 stocks are still trading above their five-year average price-to-earnings (PE) ratios. This suggests that investors need to be cautious when picking stocks.
Which Sectors May Lead the Next Market Rally?
With the market undergoing sectoral rotation, experts believe certain industries are well-positioned to lead the next leg of the rally.
BFSI (Banking, Financial Services, and Insurance) Sector
Vakil is optimistic about the BFSI sector, expecting it to be a key driver of market recovery. He believes credit growth will accelerate as government capital expenditure increases post-elections.
“Large banks are well-positioned to capitalize on this cycle, although margins may face slight pressure due to RBI’s rate cuts leading to loan repricing while deposit costs remain elevated,” he explained.
Public sector banks, he added, will benefit from resolutions under the National Company Law Tribunal (NCLT) and provision write-backs.
Energy, IT, and Pharma: Long-Term Growth Sectors
Jain believes India’s ongoing energy transformation offers compelling investment opportunities in power generation, transmission, and renewables.
“Indian IT companies, especially those leading the AI-driven digital transformation, also hold promise. Pharma and FMCG firms focused on the rural sector have strong earnings potential as well,” Jain noted.
Mishra of Religare Broking also sees selective outperformance in banking, financials, metals, energy, and IT, particularly in case of a market rebound.
Financial Ratios at a Glance
| Index/Sector | Decline from Peak | 5-Year PE Avg | Current PE |
|---|---|---|---|
| Nifty 50 | -14% | 23.5 | 22.8 |
| Nifty 500 | -17% | 26.1 | 24.5 |
| BFSI Sector | -12% | 19.8 | 18.2 |
| IT Sector | -20% | 25.3 | 22.7 |
| Pharma Sector | -15% | 29.4 | 27.2 |
Conclusion
The Indian stock market is at a critical juncture. While some experts believe it is oversold and poised for a rebound, others argue that valuations remain high. Sectoral rotation is expected to play a crucial role in the next market uptrend, with BFSI, IT, energy, and pharma sectors showing potential.
Investors should remain cautious, focusing on fundamentally strong stocks with long-term growth prospects. With macroeconomic indicators stabilizing, the coming months could bring opportunities for strategic investments in select sectors.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.