Over the last three trading days, there has been a significant correction in the wider indices on Dalal Street. From 44,654 on March 7, 2024, to an intraday low of 41,167 on March 13, 2024, the BSE Smallcap index fell by about 8%. In a similar vein, the BSE Midcap index fell 4.5% in the same time frame. Conversely, there was a 1.5% decrease in the main equity index, the BSE Sensex.

Market observers think investors should take a stock-specific approach amidst the current selloff in the overall market since most sectors and stocks seem expensive. Low-quality enterprises have an especially high degree of overvaluation. What can we anticipate from the larger space, and which stocks are good investments right now?

The important thing is to concentrate on individual equities, according to WealthMills Securities Equity Strategist Kranthi Bathini, even though there may be some sectors with excessive speculation. It is important for investors to use caution when selecting equities and to be aware of the dangers involved in owning mid- and small-capitalization businesses.

“The recent frenzy in these segments highlights the importance of recognizing the high beta nature of mid and small-cap stocks. These stocks are highly responsive to changes in regulations and market sentiment, exhibiting hyper-volatility. Before investing, investors must comprehend the consequences of high beta stocks and the nature of volatility in this space,” he said.

The monsoon forecast, rural recovery, central bank policy decisions, inflation, and the impending general elections are the main variables to watch in the short- to medium-term.

G Chokkalingam, Founder, Equinomics Research and Advisory said, “I am still optimistic about the overall market. We expect the market to hit $5 trillion in overall value (total market cap) most possibly before the general elections. However, I am nervous about a vast majority of small and mid-cap stocks as valuations are extremely elevated. Smallcap index may correct another 5%-10% minimum. We like stocks like HDFC Bank, Jio Financial, Indoco Remedies and Sterling Tools.”

However, in the event that the market experiences more correction, Bathini said that investors may consider adding companies such as NLC India (previously Neyveli Lignite Corporation India Limited), Swan Energy, Cochin Shipyard, and Sula Vineyards.