Synopsis: 70% of BSE500 stocks are in a 'bear' phase, marked by a 20% or more decline from their recent peaks. Sun Pharma Advanced Research leads the downfall with a 63% decline, followed by companies like Sterling and Wilson Renewable Energy and Adani Green Energy. BNP Paribas highlights overvaluation in mid and small caps, preferring large caps for CY25.
The domestic equity market is grappling with significant corrections, with 351 stocks in the BSE 500 index entering a 'bear' phase.
Defined by a decline of 20% or more from their recent peaks, this phase reflects the broader challenges facing the market.
Among the major losers, Sun Pharma Advanced Research Company has seen a drastic fall of nearly 63% from its 52-week high of Rs 474, emerging as the top laggard in the group.
Other notable decliners include Sterling and Wilson Renewable Energy, Network 18 Media & Investments, Chennai Petroleum Corporation, and Adani Green Energy, all witnessing declines exceeding 50% from their respective 52-week highs as of January 23, 2025.
Market Drivers: Rising Yields, FIIs, and Valuation Pressures
The equity market’s recent underperformance can be attributed to several global and domestic factors.
Rising U.S. yields, foreign institutional investor (FII) outflows, and expensive valuations in Indian markets have all contributed to the bearish sentiment.
BNP Paribas reports that FII holdings have reduced to 16% in 2024, down from a peak of 20% during FY14-20.
Additionally, mid-and small-cap stocks have seen valuation premiums climb significantly over Nifty 50, leading to a preference for large caps in 2025.
BNP Paribas notes that while Nifty 50 is still trading above its historical average, other Asian markets are nearing their lowest levels since 2010.
Despite this, India’s robust GDP growth and long-term earnings potential provide partial justification for higher valuations.
Union Budget 2025: A Potential Market Catalyst:
The upcoming Union Budget 2025 holds the potential to uplift market sentiment.
Ravi Singh, Senior Vice-President (Retail Research) at Religare Broking, pointed out that the anticipated fiscal deficit target of approximately 4.5% of GDP could strike a balance between fiscal consolidation and capital expenditure.
This figure is expected to act as a key sentiment booster, provided it aligns with broader economic objectives and investor expectations.
Sectoral Focus: Infrastructure and Defense
Ahead of the Budget, Singh suggests that investors consider capital expenditure-focused stocks such as Larsen & Toubro (L&T), Siemens, and Bharat Electronics (BEL).
These companies are well-positioned to benefit from increased government spending on infrastructure and defense.
However, analysts caution that fiscal constraints could limit capex growth, potentially leading to muted market reactions.
Conclusion:
The Indian equity market is navigating a challenging environment, with a majority of stocks in the BSE 500 index experiencing significant declines.
While global and domestic factors weigh on market performance, the Union Budget 2025 offers a glimmer of hope.
Investors should remain cautious and focus on large-cap stocks with strong fundamentals, particularly in sectors like infrastructure and defense, which stand to benefit from anticipated government initiatives.
As always, prudent financial planning and professional advice are essential when navigating volatile markets.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
