Investors lost more than Rs 3 lakh crore on Dalal Street during the past two trading sessions as the market capitalisation of BSE-listed firms declined to Rs 231.02 lakh crore on July 20 from Rs 234.47 lakh crore on July 16. Domestic equity markets have witnessed some selling pressure this week as weak global cues and continued selling pressure in financials dragged benchmark equity indices by over 1.50%. The BSE Sensex declined 942 points to 52,198 on July 20 from 53,140.06 on July 16.
Going ahead, market analysts believe that the rotation from cyclical and value to growth and defensives to continue over the coming months given the lack of short-term clarity with regard to the macroeconomic outlook, both on the growth and inflation front.
“Global equities experienced a major setback at the start of the week, driven by a multitude of factors: from a surge in the delta variant across the globe to rising inflation fears potentially leading to earlier-than-anticipated monetary tightening and weak credit growth in China, all of which are putting a dent on global growth expectations. The usually thin summer trading further compounds these developments, making equity markets vulnerable for a correction,” said Mathieu Racheter, head of equity strategy research, Julius Baer.
He further added that the peak in global growth and profits alongside expensive valuations led them to downgrade the cyclical space earlier this year in June.
“The shift towards defensive and growth themes has been swifter than we expected, supported by the relentless decline in bond yields. Nevertheless, we expect the rotation from cyclical and value stocks towards growth and defensives to continue over the coming months. We expect visibility to increase only towards the first quarter of 2022. Against this backdrop, we continue to recommend taking profits in richly priced cyclical stocks and reallocating into defensive growth stocks, with a preference for healthcare and information technology,” he added.
IT majors outpaced the BSE Sensex amid the recent selloff on Dalal Street. Where Tata Consultancy Services gained 0.33% this week, other information technology majors including Infosys and Tech Mahindra have declined 0.34% and 1.45%, respectively.
Overall, Asian Paints (up 5.57%), UltraTech Cement (1.25%), Nestle India (1.02%) and HUL (0.80%) have defied the gravity this week. On the other hand, IndusInd Bank (down 5.98%), HDFC Bank (down 5.17%), Tata Steel (down 3.57%) and Axis Bank (down 3.28%) emerged as top losers in the 30-share pack.
On asking how investors can protect their portfolio in case of any ‘U’-turn in the equity market, Dhiraj Relli, managing director and chief executive officer, HDFC Securities told Money9 that investors will have to be more selective now onwards and move up the quality ladder.
“Penny stocks and stocks that are moving up on random tips or expectations without any visible improvement in performance are best avoided. If an investor’s asset allocation has tilted more towards equities due to the rally in equity markets, it may be time to reduce equity exposure by taking profits and restoring the originally planned allocation. They should follow money management rules. Evolved investors can also look at hedging their portfolio by buying Nifty puts (although this has costs),” he added.
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