Buy on dips, say analysts, as Indian markets bounce back smartly in October

• A ‘buy on dips’ strategy is where investors look for short-term declines in share price to invest in, with a belief that the price will go up in the longer term.
  
• Banks have performed well in the September quarter, FMCG and auto sectors reported moderate growth, while IT and telecom companies reported a steady quarter.
  
• According to a Morgan Stanley report, India is on track to become the third largest economy by 2030.
  

After bouncing back smartly in October, equities have entered choppy terrain again as macro economic conditions across the globe remain challenging. But there’s good news for long-term investors – analysts recommend ‘buying the dip’, as India is expected to see a soft landing even as economic turmoil roils the developed nations. The benchmark Nifty50 has crossed 18,000, while Sensex has once again scaled Mount 61,000.

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 the price will go up in the longer term.

A look at the September quarter earnings shows that banks have performed well, FMCG and auto sectors have reported moderate growth, while IT and telecom companies reported a steady quarter.

Since the beginning of October till date (November 10), the Nifty50 and Sensex have gained 7.1% and 7.4% respectively, inching closer to their previous peaks. It is worth noting that both the indices are still marginally below their 52-week highs.

Smart bounce back, global turbulence make analysts recommend ‘buy on dips’ strategy

The latest 7.1-7.4% surge in the indices comes on the back of a decline of 3.5-3.7% seen in September and a gain of a little over 3.5% witnessed in August.

Analysts polled by Business Insider India suggest that this smart bounce back makes it a good time to employ the ‘buy on dips’ strategy.

“Markets have bounced back smartly in October 2022. Nifty now trades at 22x FY23E, comfortably above the long-period average and offers limited upside in the near term, in our view,” said research firm Motilal Oswal in its India Valuations Handbook for October.

Further justifying the ‘buy on dips’ recommendation is global turbulence – including the ongoing Russia-Ukraine war, China’s zero-Covid policies constraining supply chains, and elevated inflation resulting in central banks hiking interest rates.

“The volatility in the market is expected to continue because there is no fresh trigger in the market and the global environment continues to remain turbulent,” said Sanjeev Hota, vice president – head of research at Sharekhan.

“In this context, the current setup is a ‘Buy on Dips’ market. We recommend investors maintain good liquidity (10%) to use such dips in a phased manner to build a position in quality companies and with an investment horizon of 12-18 months," said Axis Securities in a research note.

Analysts upbeat on BFSI, auto, defence and infra focused companies

In the current market scenario, analysts have been upbeat about four sectors – the banking sector for improving quarterly performances; some automobile companies for their electric vehicle plans; defence sector and infrastructure-focused companies.

“Market is volatile because of global cues but some of the sectors which I still believe are going to outperform are private banks, where risk-reward is very favourable, then some of the public sector banks and beyond that some industrial companies; auto and auto ancillaries are looking good for investment. Apart from these, defence is another sector which I think may do well,” Hota told Business Insider India.

Further, analysts say companies across banking, financial services and insurance (BFSI) spectrum look good for investing on dips after their strong performance in the quarter ended September.

“Despite rising interest rates, banks, in particular, are enjoying their still lower funding costs, with several from the public sector and retail-oriented banks getting re-rated to higher new valuations. With the robust credit growth figures of the overall economy and improved asset quality after the pandemic-related restructurings, the banking and finance sector poses a much lesser risk downside against steady potential returns,” said Anmol Das, head of research at Teji Mandi (subsidiary of Motilal Oswal Financial Services).

Also, Shrikant Chouhan, head of equity research (retail) at Kotak Securities told Business Insider India that BFSI and autos were their favourites in the current scenario.

“In the September quarter, banks as well as NBFCs, most of them have reported decent numbers and have done much better than expectations, especially SBI and Bank of Baroda, while private banks were close to expectations,” Chouhan told Business Insider India.

Here are stocks that are worth investing on dips as per analysts polled by Business Insider India:

Stocks recommended by analysts	% change in 2022
State Bank of India	31%
Bank of Baroda	96%
HDFC Bank	-0.31%
ICICI Bank	19%
Axis Bank	25%
Tata Motors	-11%
TVS Motor	82%
ITC	63%
L&T	4%
UltraTech Cement	-10%

The fact that Indian indices are still marginally below their 52-week highs due to macro concerns provides a good opportunity to invest in some stocks that have seen a sell off. At the same time, it is important to pick the right stock and not buy something that is already above its one-year high, say analysts.

“With the Indian benchmark indices, Nifty and Sensex, trading just 2-3% below their all-time highs, one has to be cautious with the kind of investment picks so as not to get stuck buying something at 52-week high levels. We suggest any particularly large private or public sector bank, a few fallen AMCs and security broking firms and retail focussed NBFCs,” said Teji Mandi’s Das while suggesting a buy-on-dips strategy for the banking and finance sector.

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