Nifty50 tumbled as low as 17,483.40 today in the morning session, off as much as 1,121.05 points from its all-time high of 18,604.
In an interview with CNBC-TV18, Dipan Mehta, Director of Elixir Equities, mentioned that a 10 percent correction in the market cannot be ruled out. He believes that this particular correction will get deeper. He is of the view that it is the right time to wait and watch rather than going long. He also mentioned that he is keeping an eye on banks and auto sectors as these are most likely to report strong numbers in the next two quarters.
“I think this earnings season has brought about a lot of disappointments on the operating profit margin front. Many companies, despite reporting good sales have seen lower or flat profit because of higher input costs and that means that there is not as much interest in buying based on whatever results have been posted. Of course, the future will be excellent but for the time being, I think the numbers are disappointing,” Mehta mentioned.
He added, “Also, liquidity has got sucked into the market by the IPOs and we are seeing relentless selling coming in from the FIIs as well. So on the liquidity factor as well as on a fundamental basis, I think we are seeing a correction in the stock prices. Today's cue triggered Paytm as well as Reliance, that certainly has soured the sentiment and my sense is that we should see a deeper correction and it may rally a little bit but maybe a 10 percent correction from the peak cannot be ruled out."
Mehta added that this correction will be healthy for the long term dynamics of this bull market. He said, “It is a multi-year bull market no doubt, but it has been going up relentlessly, there has been no break at all. Money-making was becoming exceedingly easy so I think the markets are coming back and teaching everybody a bit of a lesson in terms of how to trade and how to get cautious and put in place some risk management measures as well. So my sense is, of course, it may rally tomorrow, day after, because it has corrected, but I don't see it going back to earlier peaks. If that doesn't happen, you will gradually see even more sell-offs taking place over a period of time. So I would be prepared for a deeper correction at this point of time.”
On adding stocks, Mehta said, “I would advocate waiting at this point of time and keeping an eye on banks and auto, auto OEMs, auto ancillary - I think they may be the first of the block in terms of reporting solid numbers for the December and March quarter. Both have been underperforming for a long time so I think these are the two segments; you could pick the market leaders in them for an outperformance once you are fairly convinced that this correction is more or less over and done with.”
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