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Emkay Institutional Equities (“Emkay”), a part of Emkay Global Financial Services Limited, maintains its stance of Nifty to remain at 24,000 level. Emkay expects the market to rebound in 3-6 months, when SMIDs (Small and Mid Caps) would start to outperform again and the ‘hide in large-caps’ trade would unwind.

The correction observed in March can be attributed to inflated valuations and concerns regarding liquidity within SMID funds and stocks. While the headline correction appears moderate, there is a substantial number of stocks that have been significantly affected. While not the most severe post-Covid correction, the pace at which it has unfolded has been disruptive. Particularly, energy, real estate, and materials sectors have been notable underperformers, with the decline in the first two sectors largely driven by mean reversion.

The current rally in SMIDs is primarily driven by a shift in India's economic growth trajectory from consumption and services towards manufacturing and investment. This shift has resulted in a redistribution of the incremental profit pool away from sectors such as banks, fast-moving consumer goods (FMCG), and Information Technology (IT), which are dominant in the large-cap universe. Conversely, manufacturing sectors, which are predominantly composed of SMIDs, have played a significant role in propelling the market's rally. This trend is expected to remain a focal point of government policies, and any significant change in incremental growth is unlikely in the near future. SMID rallies are inherent to the market, characterized by higher volatility and often accompanied by inflated valuations, followed by rapid and pronounced corrections, similar to the current one.

The target for the Nifty remains steady at 24,000, based on LTA Nifty P/E as the anchor. Emkay has a preference for SMIDs, driven by a bottom-up approach. Emkay’s overweight sectors include consumer discretionary, materials, and industrials, while they are underweight on financials, IT, and FMCG sectors. Among the 'fallen angels' in their model portfolio, their top picks are Ambuja Cements, TVS Motor, and Zomato. Additionally, Emkay perceives this market correction as an entry opportunity for its small-cap selections, all of which have experienced significant declines in value.

There are multiple triggers for the bounce back in 1-2 quarters such as the anticipated victory of the NDA in the forthcoming Parliamentary elections (Jun-24); The enactment of the initial reform-focused budget by the new government (Jul-24); and monetary stimulus from both the Federal Reserve and the Reserve Bank of India (Jul-24). Emkay views this correction as an opportunity to "buy the dip," with the only precaution being to steer clear of small and medium-sized stocks with elevated valuations.

Despite being slow performers during the ascent, sectors like staples, telecom, and materials experienced significant declines. Meanwhile, mean reversion played out for the energy and real estate sectors. Utilities notably excelled, showing strong performance in both positive and negative market movements.