Mahesh Nandurkar of Jefferies in the latest India Strategy note says despite the global headwinds, the Nifty is down just 2.7% YTD & Nifty is 40% above the pre-COVID peak, and valuations at 18.4xPE are 5-15% above the pre-COVID/LT average.

This is despite the RBI’s repo rate and the benchmark 10-year bond yields now ~75-100bps above pre-COVID levels & while earnings could see some support in Sep quarter from an early festive season & he believes that deterioration in global macro and valuations concerns could catch up with the Indian markets.

Talking about the current market set up he says we are currently in the 4th correction since Nifty’s Oct’21 peak & barring healthcare and FMCG the sector performance has varied during the periods of corrections. He expects the same should continue in this correction as well. Talking about IT services he says it would be vulnerable as concerns could emerge on revenue growth outlooks and selective PSUs like NTPC and Power Grid should serve well as defensive, but the undisputed defensive is obviously ‘cash’.

Mahesh Nandurkar also says that several Outperformers in a rally since the Oct’21 market peak, have tended to Underperform in the subsequent corrections; and vice versa. Autos, Industrials, Realty and Materials have Outperformed in the previous rally and could be vulnerable & NBFCs could incrementally face challenges as the funding cost pressures potentially undermine their position vis-a-vis banks. Talking about the domestic flows he adds that historical analysis suggests that domestic flows slow down when trailing 12-month market returns turn negative & we are currently at that stage and would be interesting to watch out for the flow trend