After the Ides of March, analysts pick best stocks that can be bought on dips

• After witnessing a volatile March, Indian equity markets now offer a ‘good entry point’ for long-term investors, say analysts.
• Although bouts of volatility cannot be ruled out, there is a consensus amongst analysts that investors should use a ‘buy on dips’ strategy to accumulate quality stocks.
• Analysts see Nifty50 around 20,000 by the end of this year, with the financial sector emerging as a favourite, apart from several blue chip stocks like State Bank of India, Reliance Industries, Infosys among others.

India’s blue chips State Bank of India, Maruti Suzuki, Reliance Industries, Infosys and ITC emerged as the favourite picks of analysts even as volatility is expected to persist in the Indian equity markets in April. Going forward, analysts recommend investors to employ a ‘buy on dips’ strategy.

A ‘buy on dips’ strategy is when investors look for short-term declines in share price to invest in the stock, with the belief that it will go up in the long term.

Key amongst the drivers of Indian equity markets in April will be the earnings season, with TCS kicking it off on April 12, followed by Infosys and HDFC Bank.

“We believe the macro and the upcoming earnings season will drive the market direction moving forward and hence Q4 FY23 earnings remain critical at this juncture,” said a report by Axis Securities.

Foreign institutional investors (FII) have so far sold equities worth $6.1 billion in 2023 so far, but the analysts at Axis Securities believe that the worst of FII selloff is behind us now. Going forward, the brokerage believes that economic recovery and corporate earnings will take centrestage.

Nifty50’s current valuations provide a ‘good entry point’

The benchmark Nifty50 index declined by 3.3% in 2023 so far, and the recent correction has dragged down the index’ price-to-earnings multiple to 17.4x on a 12-month forward basis. This is below its 5-year average of 18.8x.

“Current valuations are below the 5-year average (18.8x), providing a good entry point for long-term investors,” said the Axis Securities report.

In terms of sectors, the brokerage says that valuations of PSU banks, metal, and energy look attractive, while IT, pharma and auto sectors look expensive.

Analysts at Goldman Sachs are overweight on banks, industrials and cement companies, while those at Morgan Stanley are bullish on the financial and consumer discretionary sectors.

Capitalise on dips, say analysts

Following on from the see-saw movement seen in March, analysts expect volatility to persist in the Indian equity markets in April due to global uncertainties. However, investors can capitalise on this volatility to employ a ‘buy on dips’ strategy.

“Bouts of volatility cannot be ruled out owing to global uncertainties. Thus, dips should be capitalised on to accumulate quality stocks,” the analysts at ICICI Direct said.

Echoing similar sentiments, analysts at Goldman Sachs recommend buying on dips, saying, “The valuation of the stocks is reasonable, though still not cheap. The relative premium to the region has halved from a record peak and the returns would be driven by 17%/15% earnings growth in 2023/24.”

There is also a growing consensus amongst brokerages that Nifty50 might end this year around 20,000. While Axis Securities maintained its target of 20,400 for the benchmark index by the end of this year, Goldman Sachs said in a note that Nifty50 is likely to touch 20,000 in the next 12 months thanks to double-digit earnings growth in FY24.

Going forward, here are the top picks of analysts across categories:
Source: Axis Securities, ICICI Direct

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