Time To Wade In

In the absence of further bad news, selling fatigue may be the reason stocks begin to move up.

- Samar Srivastava

The first hint of a bounce back is always met with disbelief. Is this real or is this too good to be true? Yet, this is a question investors and their money managers, who’ve suffered bruising losses in their portfolios over the last year, are increasingly asking. After all, Sensex has been flat but midcap index is down 22 percent.

There are initial signs the market is in oversold territory. Take the case of auto bellwether Maruti Suzuki. In August a slowdown in sales growth caused the market to shave 66,000 crore ($9.5 billion) off its market cap over the next month. Monthly auto sales data released on the first of every month became a keenly watched metric with the stock nervously yo-yoing on that day. February sales remained virtually flat (they rose 0.9 percent) and the stock ended March 1 up by 2 percent. The stock is still around the same September 2018 levels with a 27 percent lower market cap. The decline has, for now, stopped as the market waits for earnings growth to catch up with valuations.

Maruti is not a one-off example. Broader market stocks with strong fundamentals have seen modest increases of between 5 and 20 percent. While prices are still down for the last 12 months, for the most part valuations are now reasonable and ready for the next move up. The elections, foreign and domestic fund inflows, oil prices and a US-China trade war still remain risks but if one goes by valuation alone, there is also an acceptance that the market may be close to a bottom. (Keep in mind that while there may not be a lot of price damage hereon, the chance of a time correction is still there.)