Broadbased hurt = no fast recovery on Street

Last week saw a third of shares hitting new 52-week lows. The refrain now is that the broader market will continue to struggle in the near term even as key indices find some support.

The sharp depreciation in the rupee and dimming hopes of interest rate cuts by the Reserve Bank of India (RBI), along with moderation in liquidity-induced risk appetite globally, may keep midcaps under pressure, believe experts.

Last week saw 796 out of a total 2,461 stocks listed on BSE making new 12-month lows as investors abandoned high-beta — or volatile — shares and capital-intensive stocks.

With the RBI holding back on rate cuts during its monetary policy review last week and many experts predicting another pause in the next policy review on July 30, the real estate, metals, banking, capital goods and power sector indices were clobbered.

Then the US Federal Reserve chairman Ben Bernanke said he may start tapering quantitative easing by the end of this year, further beating down those betting on a liquidity lift in high-beta stocks.

A little less than a fifth — or 92 — stocks from the BSE 500 index, which represents 94% of the overall market capitalisation of the exchange — hit new 52-week lows in the last session alone.

The BSE small cap index is now trading at a 52-week low and the midcap index is quoting just 2.73% away from its yearly low, even as the Sensex is still up 13.11%.

Ambareesh Baliga, managing partner, global wealth management at Edelweiss Financial Services, believes the pressure will continue in the near term.

“Looking at the current scenario, it seems that rate cuts may not happen sooner and this, along with slower economic growth, would weigh on the broader markets,” he said.

Baliga advises investors to refrain from bottom-fishing in stocks hitting new lows as they could fall further.

“Investors should not look at these stocks unless the reason for the fall is just technical and they see value in the business model and visibility is there in terms of earnings growth. Many of the broader shares have also fallen on poor corporate governance issues, which nowadays has become one of the important factors in stock selection,” he said.

Bharat Iyer, head of India equity research at JP Morgan, believes the relationship between gross domestic product or GDP growth and the rupee has strengthened over the last few years, suggesting that any sustained reversal in the rupee would be contingent on a durable economic recovery and that one should stick to defensives.

“Expectedly, defensives and export-oriented sectors have outperformed during phases of rupee depreciation. Utilities, financials, industrials and materials have tended to underperform,” he wrote in a note on Thursday.

Baliga believes the Nifty in the near term may see support at 5600-5650 levels but if that gets broken, it could head towards 5420.