Small & midcaps in bear market, largecaps a better play: Mohit Nigam of Hem Securities

“A series of market sell-offs has pushed the small cap index far into bear territory. Nifty Smallcap has fallen nearly 20% from its all-time high,” says Mohit Nigam, Head – PMS, Hem Securities.

In an interview with ETMarkets, Nigam said: “Inflation remains a big concern for the markets. Largecaps are better positioned to deal with the current market condition because of their size and pricing power.” Edited excerpts:

Sensex, Nifty broke below crucial support levels in the week gone by. Indices dropped by about 4% each for the week ended 13 May. What led to the price action?
Indian benchmark indices broke the crucial support levels amid incessant sell off from FIIs, surprise rate hike by RBI, negative global cues especially from US markets.

The US

is looking for further hikes in June to control the rising US inflation. Moreover, speculations regarding further rate hike by RBI in its June meeting also downplayed investor sentiments.
The global supply crunch due to lockdown in China and geopolitical tension between Russia and Ukraine has soared raw material prices for many industries.

Big dent was seen in the smallcap and midcap space down more than 4% each. What is weighing on broader markets? What should investors do?
A series of market sell-offs has pushed the smallcap index far into bear territory. Nifty Smallcap has fallen nearly 20% from its all-time high.

Inflation remains a big concern for the market. Investor sentiment has been harmed by a weakening economic growth outlook, a protracted Russia-Ukraine war, commodity price volatility, continuing FII selling, and rising bond yields.

Because of their size and pricing power, largecaps are better positioned to deal with the current market condition.

With Nifty50 being down by about 14% from highs, is it still a bull market correction, or should investors brace for more turmoil before it gets better?
India’s long-term growth story is intact. So I have no doubt whether the long-term bull market is intact or not. It is intact.

And if we see recent quarter numbers of Nifty50 heavyweights, whether it is

or or , they have posted good results, though leaving some market expectation unfulfilled. But overall, it was good.

The real pain that still lies is in the high inflation rates and in the response to rising interest rates from central banks.

From April inflation data released in the US market it was clear that though the inflation might have peaked, the level of inflation is still quite high which means it will continue to have an impact on earnings.

And, as the central banks will keep increasing the cost of funds until inflation comes to their tolerable levels, the liquidity in the markets will reduce furthermore.

So, overall, the turmoil in the market will continue for some more time until the crude price and inflation come below or around pre-pandemic levels.

Sectorally, metals were down by more than 10%. What led to the price action and what does the technical suggest?
Recent lockdowns in China due to surge of Covid-19 cases decreased steel demand in the country. And because major steel demand comes from China, decrease of demand will lead to crash of steel prices and ultimately a fall in metal prices is leading to a crash in metal stocks.

Technically also, there can be some pressure in the short term as price action has made bearish patterns on the daily time frame but in long term bulls are leading the price action as compared to bears and one should accumulate this stock on every dip for long term gain.

Any mistakes which investors should avoid making especially in a falling market?
Whether it is panic selling, hiding out in cash, investors make several mistakes which hurt them in the long term.

In a falling market, if the price of any stock falls then find out the reason for the same, whether it is justifiable or not, if not then it is better to exit the position.

Another mistake investors make is averaging the falling stocks without checking its fundamentals; However, if fundamentals deteriorate then investors should exit the position rather than averaging the position.

Small investors often stop SIPs in equity funds when the market falls. This defeats the very purpose of doing an SIP. A bearish phase is exactly the time when sticking to SIP discipline will help you achieve your long-term goals.

Another mistake is lack of patience. Investors need to keep their expectations realistic with regard to the timeline for portfolio growth and returns.

What should investors do next week? Buy the dip or sell on rallies?
We believe that the volatility may remain at elevated levels in the near-term due to corporate earnings and global macro events.

Investors should use this dip as an opportunity to accumulate quality stocks which are available at attractive valuations.

At the same time, one should not buy a stock just because it has fallen or available at a low price but should invest in the company with good growth visibility and strong fundamentals.

Important levels which one should track in the coming week on Nifty and NiftyBank?
Bank Nifty and Nifty50 are trading around their crucial levels of 33,000 and 15,700, respectively.

We believe the indices can bounce back from these levels and if some how they break these levels, the next immediate range will be 30,000 and 15,000, respectively.

The immediate resistance for Nifty is 16,200-16,500 while the immediate resistance for Bank Nifty is 34,700.

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