I do not think that the recent pressure seen in PSEs and heavyweights from the banking space is indicative of a trend that is likely to continue. When we look at the market on a shorter-term basis, we see that it has been moving in a range. Over the last month, we have been at the lower end of the band, whereas in November, December, and January, we were in a range around 18,000, which was the higher end of the band. Even if we look at the medium-term, over the last two years, the market has been moving within a range. Today’s large-cap indices are at the same level as they were 18-20 months ago, reflecting the broader range that the market has been moving in.
There are multiple reasons for this, including the fact that valuations had gone ahead of justifiable levels, too much optimism and growth had been built in, and the December quarter numbers did not fructify, resulting in a decline in top-line and bottom-line growths due to continued commodity prices. Thus, I believe that the market will continue to move in a range-bound movement of indices, and it is not the beginning of a trend that will keep going down. While anything can happen in the market, this is my view as of today.
Your outlook for the entire metal space, given the recent positive brokerage notes and expected triggers for growth in the sector? Specifically, what is your outlook on the steel space?
In my opinion, the commodity prices in the metal space will continue to move in a limited range, which is what they have been doing for the past 15 months. We had a huge rally in commodities, both ferrous and non-ferrous, which eventually came down, and since then, they have been range-bound. The commodity stocks tend to follow the same pattern as the commodity prices, rather than the financials or quarterly numbers, which are more of a lag indicator than a lead indicator.
While there is a lot of news flow around supply and demand factors affecting the commodity prices, I believe that these factors are balanced, resulting in a range-bound movement of the commodity prices. Consequently, I anticipate that the metal sector’s stock prices will continue to remain in a range, offering good opportunities to short-term traders who can spot the pattern well. Therefore, my outlook for the steel space is that it will remain range-bound, and short-term traders will have ample opportunities to trade within that range.
Can you share some top recommendations for individual stocks that have the potential to outperform within the broader markets?
As we’ve been discussing, the market appears to be range-bound rather than providing any specific direction. So it’s crucial to carefully select stocks or sectors in such market conditions. To do that, I would consider factors such as recently reported quarterly numbers, upcoming Q4 results, valuations, and market corrections. Based on these considerations, I believe that the IT sector presents an attractive opportunity, given the recent corrections from its highs.
While concerns persist regarding the anticipated slowdown or recession in global markets, especially the US and Europe where India’s IT services are exported, I believe that the sector can still achieve an annualized growth rate of around 10%, plus or minus 1-2%. The pressure on margins caused by high employee costs and attrition rates has been easing, as evident from Q3 numbers, and is expected to be more visible in Q4. Overall, I see potential investment opportunities in the IT sector amidst the current market correction.
