Ceasefire calm sparks bargain hunting in beaten-down stocks

Mumbai: As the US-Iran ceasefire takes hold, bargain hunters are cautiously stepping into stocks that bore the maximum brunt of the West Asia-led sell-off. The renewed appetite triggered a sharp rebound on Wednesday in sectors such as aviation, travel, oil marketing companies, textiles and chemicals, though money managers and analysts are split on whether the recovery is here to stay, or they are mere value traps.

“Getting into beaten names in the hope that they will rebound the most is not the right way of investing in this upturn,” said Dinshaw Irani, MD & CEO, Helios India.

The market sell-off in past five weeks was largely broad-based, but shares in sectors that would be most affected by a shortage in energy supplies, travel and transport disruptions took the heaviest hit. With the two-week ceasefire giving markets a breather, investors are piling on some of these stocks, hoping to ride the momentum, even if it is temporary.

Among oil and gas stocks, Hindustan Petroleum Corporation rose 10.12%, followed by Bharat Petroleum Corporation at 7.6%, Indian Oil Corporation at 7%, and GAIL at 5.4%. UPL rose 6% and Navin Fluorine International added 4.2%, among chemicals. In aviation, InterGlobe Aviation advanced 8.09%, while SpiceJet rose 5%.

Not all beaten-down stocks could, however, see equal interest in the foreseeable future.

“During the West Asia conflict, the most battered sectors were aviation, oil marketing companies, paints, chemicals and auto ancillaries due to surging crude prices and rupee weakness,” said Aamar Deo Singh, senior VP Research, Angel One. “But what we are seeing is that the stronger bargain-hunting is in quality large-caps within banks, pharmaceuticals, and FMCG, which were not directly impacted.”

The guarded optimism is that some of these sectors could face headwinds as crude oil prices remain elevated for a while, said Helios’s Irani. Oil prices may need to sustain below $80 a barrel for these sectors to find broader investor acceptance.