Sensex, Nifty underperform their top global peers. Are we in a bear market? What should you do? Here's what analysts say

The concerns that the market is dealing with now are not new. Inflation, rate hikes, geopolitical tensions and signs of a slowdown in global economic growth haunted markets across the globe in 2022.

However, despite these headwinds, the Indian market ended in positive territory last year while most of its peers fell.

But after an outperformance in 2022, domestic market benchmarks the Sensex and the Nifty50 have been underperforming their major global peers this year so far.

Till February 22, the Nifty50 was 3 percent down year to date (YTD) while the Sensex was down 2 percent. In comparison to the domestic benchmarks, the S&P 500 was up 4 percent, whereas the US's FTSE and China's Shanghai Composite gained more than 6 percent each.

In the BSE 500 index, data show that 21 stocks are down more than 50 percent and 11 stocks are down more than 60 percent from their 52-week highs.

As Devarsh Vakil, Deputy Head of Retail Research at HDFC Securities pointed out that smaller stocks that are part of the NSE Smallcap index are underperforming.

"Breadth continues to remain poor as the number of stocks above their 200-day moving average have now slid below 50 percent, which indicates it is a highly concentrated and stock-specific market," said Vakil.

Domestic markets have been dancing to the tune of global cues. But why are they underperforming? Have they lost steam?

Or, are we in a bear market?

Down but not dusted

Most experts do not think we are in a deep bear market. They concede the times are challenging but they show firm faith in the India story.

Mitul Shah, Head of research at Reliance Securities expects pressure on markets to continue for the near term amid adverse global macros and a weakening rupee.

However, Shah does not consider it a bear market as the Nifty continues to trade above 17,000 and is enjoying a relatively premium valuation.

"We believe that India is better placed and relatively stronger with one of the highest economic growth of nearly 7 percent GDP growth. We believe that the market would bounce back soon in FY24 and it would deliver a double-digit return in FY24," said Shah.

G Chokkalingam, Founder & Head of Research at Equinomics Research & Advisory has similar views.

"We believe that the domestic market is not in the bear phase. The overall market is disconnected to some extent from corrections in Adani Group stocks. While Adani group stocks fell up to 75 percent, the Sensex and midcap indices fell only around 3 percent since the day Adani group stocks started falling," Chokkalingam pointed out.

Chokkalingam believes with inflation moderating, oil and metal prices falling and the interest rate cycle nearing the peak, corporate earnings should come back to growth momentum within a couple of quarters.

He said a steep increase in capital expenditure (Capex), robust banking credit growth, NRI remittances and service exports, good crop output, healthy competition among major States to achieve the $1 trillion economy goal and fast growth of India’s GDP would make the domestic market very attractive once again.

"The only possible risks would be any fresh war in Asia or a bubble in crude oil prices. Otherwise domestic markets would recover once again," said Chokkalingam.

On the other hand, Anmol Das, Head of Research at Teji Mandi believes we are in a bear market to some extent.

"Markets give a bearish look when the future outlook is bleakish from every angle. The current macro scenario with inflation overhang and rising interest rates amid good demand in a post-pandemic market does resemble a bear market scenario," said Das.

What should investors do?

Shah of Reliance Securities advises accumulating good quality mid and large-caps as he expects midcap to outperform strongly over the next one year.

"Investors should pick quality midcap with lower debt as interest rate upcycle would put pressure on earnings of highly leveraged companies and high return on equity in the space of capital goods, engineering, auto ancillaries, speciality chemicals, etc.," said Shah.

Das of Teji Mandi advises holding the bets till more clarity emerges on inflation and rate hikes.

"Wait and watch. There isn’t much for investors in this kind of market as most stocks are way below their 52-week highs, so profit booking is out of the question, and a fresh entry point isn’t suggestible considering more downside could be seen in coming weeks as well," said Das.

"For traders, this isn’t the time to look below large-caps or sector and industry leaders, as barring a few, most are more than 20 percent below 52-week highs, and hedged with the right position in the derivative segment could benefit them in either of the segments," Das said.

Vakil of HDFC Securities underscored that the Indian equity markets are in a downtrend, but he added that there are select opportunities to invest and profit in the long run.

"A well-diversified portfolio is key. If you are invested in a mix of relative winners and losers, it helps to minimize your portfolio’s overall losses. Systematic investment plans and gradually adding stocks is a good way to beat the market downtrend," said Vakil.

Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.