Share Market: There was a huge fall in the stock market today on January 6. From Sensex-Nifty to midcap and smallcap stocks, there was devastation everywhere. The cases of HMPV virus are reminding many investors of January 2020, when the stock markets collapsed due to the Corona virus. This decline has also raised a big question whether this decline should be seen as a buying opportunity or should we wait a little more? Overall, there is a big danger facing the market right now, which investors should avoid. Apart from this, there are also 3 more reasons which can stop them from placing big bets. Let us know them one by one-
Big reason to fear: weak earnings growth
Market experts say that investors should once again prepare themselves for poor quarterly results. Earnings growth of companies looks weak in this financial year and it may be limited to only 5%. Earlier in the second quarter also, the results of most of the companies were bad, after which market experts had cut their ratings and target prices. The situation is not looking better even in the third quarter. If earnings fall short of expectations, it could lead to further market decline.
Apart from this, there are 3 more reasons which are preventing investors from being too greedy i.e. placing big bets.
1. Danger of HMPV virus
This virus has been in the news the most today, but investors should not take any hasty decision regarding it. No one can predict what its shape will be like in future. Market experts say that there is no reason to panic like Corona. But the stock market never likes uncertainty. In such a situation, if this virus spreads, the confidence of investors may waver. People may withdraw money from the market or avoid investing new money. In both cases, this is a risky thing for the market.
2. High valuation pressure
These valuations are always a ride of 2 boats. As long as the boat of earnings growth goes well and good figures come, the boat of valuation also keeps sailing along. The prices of stocks with strong earnings growth for the last 4 years were skyrocketing. But now with the earnings growth slowing down, their valuations are also looking high. The recent fall has definitely given some relief, but there seems to be very little scope for rating upgrade of these stocks.
According to a Bloomberg report, earnings estimates for the next financial year are currently available for 433 stocks out of NSE 500. Of these, more than half of about 273 shares have P/E multiple above 25.
From now on, 2 cases are made. First Bull Case- If the earnings growth of these companies comes as per expectations, then their shares may see stability or rise. On the other hand, if the opposite is the case, i.e. their results are bad, then the stocks may fall further. Therefore, along with the valuation, the earnings growth prospects of the companies must be considered.
3. Selling by foreign investors
The share of FIIs in the Indian stock market was 20.95% in March 2021, which has now come down to 16.1%. A big reason for this is that foreign investors are currently getting better returns in America itself. Additionally, high valuations and weak earnings growth in India are also not attracting new foreign investment. Unless these factors stabilize, it is difficult for FII support to come back in the market.”
Overall, till now the strategy has been to buy on dip, but this time it may be better to ‘wait and watch’. Also always remember one golden rule of investing in the stock market. Never rush, that is, never make a big bet at once. Rather, purchase slowly and act wisely.
Read also– Share Market Crash: Big fall in share market due to these 5 reasons, Sensex down 1200 points, all sectors sank
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