Every fifth active stock is hovering at a 52-week low

Nearly one in every five stocks in the BSE 500 index has hit fresh yearly lows in the last four trading sessions as the markets continued their downward trend on global concerns and signs of a slowdown in earnings growth.

Eighty-nine companies belonging to BSE 500 index, including four Sensex companies, have hit 52-week lows since August 1.

On Thursday, when the benchmark Sensex lost 1.38%, or 247.37 points, to close at 17693.18, heavyweights like Reliance

Industries, Wipro, Bhel and Jindal Steel made new yearly lows.
Market experts attribute the sell-off to a multitude of negative factors both at home and abroad.

“There are several headwinds at the moment, be it related to political issues, inflation and corporate earnings on the domestic front or global factors,” said Deepak Jasani, head of retail research, HDFC Securities.

Over the last few days, the markets have reeled under adverse global developments, leading to almost 187 of the BSE 500 stocks trading within 10% of their yearly lows.

In fact, as many as 103 BSE 500 stocks have lost more than 50% from their respective 52-week highs.

Experts see some more pain in the immediate term.

“Currently, Indian equity valuations are not coaxing enough, especially given the slowing earnings growth due to accelerating margin pressures. Moreover, there is no cushion in market for a Lehman like shock event. A 10% correction from here though would provide increased valuation comfort and some cushion in the prices,” Vijay Gaba, equity strategist at DSP Merrill Lynch, wrote in an India strategy report on Thursday.

The earnings estimate for Sensex companies has come down 2% over the last two quarters to `1,234 per share.
“Retail investors who are looking to enter the markets may be well-off waiting for another couple of weeks. Markets are expected to move in narrower range over the next few days, forming lower highs and higher bottoms till they probably breakout on the downward side. Pharmaceutical, FMCG and telecom stocks could act as a temporary parking lot till the markets bottom out and value starts emerging in other growth sectors,” said Jasani.

Investors across the board, be it institutional or retail, have become risk averse at the moment, but experts see things changing around for the markets in the next few months.

“Capital preservation should be the top priority in the immediate term with moderate asset allocation predominantly consisting of large cap defensive equity portfolio, some tactical high yielding debt and adequate cash. However, most macro worries should abate sometime in second half of fiscal 2012,” wrote Gaba.

Experts see the market bottoming out in the next six months.
“On domestic front, things seem to be getting better for India,” said Manish Sonthalia, VP and fund manager at Motilal Oswal Asset Management. “As the commodity prices cool off due to slowdown in global growth, inflation in India would also come off, which is the case we may see in next 3-6 months. Some of the beaten down names in investment-led sectors like infrastructure and capital goods may be looked into in coming months as valuations become cheaper,” he said.