Loss-making firms at abnormal valuations are a recipe for disaster: Inditrade Capital’s Sudip Bandyopahyay

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Benchmark indices ended in the red for the third straight session on July 20 dragged by metal, power, financial and realty stocks. At close, the Sensex was down 354 points at 52,198.51 and the Nifty was down 120 points at 15,632. In fact, Sensex has lost over 1,000 points in just two trading sessions this week. Does this point to a deeper correction ahead? Sudip Bandyopadhyay, group chairman, Inditrade Capital shares insights on Market Masterclass on the way investors should now approach the markets.

Healthy consolidation

Shrugging off concerns on the sharp dip seen in markets, he said, “There’s no need to be worried about the recent corrections. Markets have gone up very fast and are hovering near all-time highs. I would see this as a healthy consolidation. Certain pockets and some stocks at this point look very stretched but overall one need not be concerned a lot as there is liquidity and India is showing signs of recovery from the second wave and the ‘dooms day’ prophesies have been proven wrong. I believe there is still value to be tapped in certain pockets and would say it is a stock-picker’s market”

IT sector to shine

On the earnings front, he believes that the IT sector will lead the earnings growth in Q1 and there is still scope to invest in quality names even after the current valuation. He also believes the sector will go through a multi-year re-rating over the next five years.

Valuation concerns

On the IPO rush and the retail frenzy, however, he warrants caution. “While there are many good companies also hitting the markets, the new generation of companies are bringing a new dimension to Indian markets which is positive. However, the valuations are stretched in many cases. Loss-making companies at abnormal valuations even compared to global peers looks like a recipe for disaster. While there may be listing gains but at some point, there will be a massive correction so I would warn the investors to be extremely cautious. One must be nimble, exit at the first opportunity. These won’t hold for the long term at these valuations. One can still look at entering after listing and after corrections.”