ETMarkets Smart Talk | Over 60% of the stocks are available at 25-50% discount highs: Value buys or traps? Manish Goel explains

“Having said that, every such market correction has done two things for sure. One, bring a new flock of investors to the market and two create a 2-3 year window for making 15-20% compounded returns,” says Manish Goel, Founder & MD, Equentis Wealth Advisory Services.

In an interview with ETMarkets, Goel said: “While the worst may be behind us for some stocks, patience will be crucial in navigating the next phase of this cycle. Investors should balance risk and reward carefully rather than chase short-term bounces,” Edited excerpts:

What a volatile February we have seen amid trade war fears and the selling by FIIs in Indian markets. What are your views?
Yes, February has been quite volatile, mainly due to global uncertainties, trade war fears, and continuous FII selling. But what’s different this time is the strong support from domestic investors—both retail and institutional—which has helped balance things out.Even though FIIs have pulled out a record amount in Rs 2.1 trillion since October 2024, DIIs have stepped in with even higher investments (Rs 3.2 trillion), keeping the market from falling sharply.Back in March 2020, when FIIs sold heavily, the market crashed 23%. This time, despite big outflows, the Nifty has held up much better, dropping only 6% in
October and 4% in January.The good news is that FII sales have slowed down a bit in February. While volatility is part of the game, India’s strong economic foundation gives confidence that things will stabilize, and sooner or later, FIIs will return. Trade war fears are real – what is the kind of impact you foresee on specific sectors as well as markets in general?
Right now, it seems more like a negotiation strategy than a full-blown trade war. The U.S. plays a major role in global trade, contributing 16.6% with imports and exports worth $5.14 trillion. However, it has a trade deficit of little under $1 trillion, which the Trump administration is trying to reduce by negotiating better trade terms.

Many trade partners, including Canada, Mexico, the EU, and South Korea, have already agreed to lower tariffs on key goods. India, which has a trade surplus of $35 bn with the U.S. (imports of $42bn and exports of $77.5bn), has also adjusted tariffs.

Since the U.S. accounts for 16% of global imports, mostly merchandise, a complete trade shutdown is unlikely. Even during Trump’s previous term, the trade deficit kept rising from $515bn in 2017 to $653bn in 2020 and has reached $918 bn in 2024.

What about earnings? Do you see an earnings recovery in CY25?
Earnings recovery in CY25 looks very likely. The slowdown in earnings over the past two quarters was due to a high base of 35-40% growth in Q1 and Q2FY24.

However, the trend has already reversed. Both GDP and earnings are back on track, with Nifty 50 earnings rising 5% YoY in Q3FY25 and GDP growth improving to 6.8% from 5.4% in Q2.

This uptrend is expected to continue, driven by the government’s focus on boosting consumption in the latest budget and potential rate cuts by the RBI, which will further support demand and corporate profitability.

Looking ahead, corporate earnings are projected to grow at 15% YoY over the next two years, and with the 1-year forward PE ratio now at 18-19x, which is well within historical averages, valuations look quite reasonable.

We believe that any market correction now only makes India an even more attractive investment opportunity.

Small & midcaps are in a bear market or probably trading around that. How should one play this theme? Do you see more pain?
Small and midcap stocks have experienced significant pressure, leading to a valuation reset. The BSE Midcap index, now trading at a P/E of 26 (below its 5-year median of 30.6), reflects a meaningful correction, whereas the BSE SmallCap index remains slightly above its historical average (22.3 vs. 21.3), indicating that small caps still carry some premium.

While small and midcaps are witnessing a valuation reset, selective opportunities are emerging in quality names. However, given the market’s tendency to overshoot on both the upside and downside, investors should brace for continued volatility before a sustained recovery takes shape.

Where are the pockets of opportunities for investors this year?
As the economy grows and earnings growth picks up, several sectors look promising for investment this year. Banks offer a structural opportunity, while IT and export-driven companies could benefit from a weaker rupee, making their services more competitive.

With rising rural incomes, more people may opt for two-wheelers, and lower interest rates could make real estate investments more attractive. Travel and hospitality are also set to bounce back as tourism picks up.

At the same time, government support is speeding up the shift toward green energy and electric vehicles. E-commerce, too, is on a steady rise, thanks to more people embracing digital platforms for shopping and services.

There are a lot of stocks that trade at a discount of 20-50% from their respective highs. How should one pick those stocks – what should be the ideal criteria?

The extent of the decline across the BSE universe underscores the correction’s severity:

• 63.8% of stocks are down 25-50% from their highs.
• 18.6% have fallen 50-80%, suggesting deep corrections in certain pockets.
• Only 2.9% of stocks have fallen less than 10%, showing resilience in a select few.
Source: Data as on 20th Feb 2025

While valuations have moderated, we still recommend a cautious, selective approach while investing.

• Focus on quality: look for companies with strong balance sheets, earnings visibility, and industry tailwinds.

• Avoid speculative bets: avoid stocks that rallied purely on momentum without fundamental backing.

• Use staggered entry: Instead of rushing in, accumulate in phases to navigate potential volatility.

• Sectoral themes: invest in defensive sectors (FMCG, pharma) or niche growth stories that can sustain volatility.

While the worst may be behind us for some stocks, patience will be crucial in navigating the next phase of this cycle. Investors should balance risk and reward carefully rather than chase short-term bounces.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)