The ongoing volatility results from several factors, including China's economic stimulus measures and a disappointing second-quarter (Q2) earnings season. The increased supply of equities through initial public offerings and qualified institutional placements has added to market pressure. Lastly, the prospect of a strong dollar implies that emerging market (EM) flows will continue to be affected.
I believe this correction is more about time than price. It will likely lead to a period of low or flat returns, similar to what we witnessed between November 2021 and March 2023.
While the National Stock Exchange Nifty 50 Index trades at a higher valuation of around 21 times one-year forward earnings, valuations vary across the market. Largecap stocks appear relatively cheaper compared to midcap and smallcap stocks. Therefore, investors should focus on sectors with the potential for positive earnings surprises or those that are attractively valued.
What's your take on Q2 earnings? Has any sector delivered a surprise?
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