Market Corrections Are Normal; Multibagger Opportunities Remain, Say Experts
Despite recent market corrections, investment opportunities persist, with experts emphasizing the potential for long-term gains. Speaking at PMS AIF World’s Crystal Grazing 6.0 event on February 15, industry leaders highlighted that corrections are a natural part of market cycles and can create opportunities for discerning investors.
Market Cycles and Corrections: A Natural Phenomenon
Samit Vartak, Founding Partner and CIO of SageOne Investment Managers, explained that market cycles tend to peak every two and a half to four years. “It’s a sign of a bull market when markets run ahead of earnings. Then certain risks emerge, leading to a correction,” he said.
He pointed to historical market corrections, citing the 2008 financial crisis, when the Nifty index fell by 55% and small caps dropped by 75% from their peaks. However, Vartak emphasized that the current correction is primarily valuation-driven rather than crisis-induced. “There is no systemic crisis, no banking issues, and corporate balance sheets are among the strongest they’ve ever been,” he noted.
Following a fourfold surge in market valuations since the COVID-19 pandemic, especially in small and mid-cap stocks, Vartak believes the correction is justified and healthy for long-term stability.
Overvaluation and Investment Opportunities
Sandeep Daga, MD & CIO of Nine Rivers Capital, echoed Vartak’s sentiments, stating that overvaluation in small caps was a key factor driving the correction. “This correction is actually a good and necessary adjustment within an otherwise long-term bull market in India,” he said.
Daga sees precision engineering and healthcare as promising sectors. “Precision engineering caters to both automotive and non-automotive industries, with emerging opportunities in India and globally,” he noted. He also highlighted the healthcare sector, where multiple companies are entering the market via IPOs, creating investment potential.
“You have to select the stock, look at valuations, but the current environment presents a great opportunity to cherry-pick high-potential companies,” Daga added.
Strategic Sector Shifts
Mitul Patel, Senior Executive Vice President at 360 ONE Asset, noted a post-COVID shift in their investment strategy, moving from cyclical stocks to secular and defensive sectors.
He pointed to telecom and cement as sectors with strong pricing power, benefiting from industry consolidation. “It’s about selecting the best, most efficient players who can sustain long-term growth,” Patel said.
Multibagger Potential in Unlisted Markets
Vartak also spoke about identifying multibagger stocks in the unlisted space, cautioning that it requires a different expertise due to its opaque nature. He noted that high demand for unlisted stocks often leaves little time for thorough analysis, making listed markets a more accessible option.
“In the listed space, you can often find valuations that are never available in the unlisted market,” he said. He advised focusing on high ROE, sustainable growth, and market share gain when identifying potential multibaggers.
Final Thoughts
While market corrections may seem concerning, experts agree they are a normal part of market cycles and present opportunities for long-term investors. By focusing on valuation, sector strength, and company fundamentals, investors can capitalize on the evolving market landscape.
