Market corrections create selective buying opportunities as earnings improve: PGIM India

Market corrections are creating selective buying opportunities for long-term investors as price adjustments coincide with improving earnings fundamentals across various sectors. Aniruddha Naha from PGIM India Asset Management Pvt Ltd identifies this convergence as a favorable environment for portfolio building, particularly where corrections are supported by strengthening business metrics.

Dual Positive Factors Drive Investment Case

The current market phase presents what Naha describes as a "double positive" scenario for investors with a six to twelve-month investment horizon. Price corrections in specific market segments are being accompanied by earnings improvements, creating attractive entry points for strategic positioning.

The ongoing quarter may serve as a base period with certain sectoral pressures, but these effects are expected to be absorbed progressively into the next financial year. Lower raw material costs and topline growth are anticipated to support the positive trajectory.

Sectoral Investment Preferences

Naha highlights specific sectors showing promise based on current valuations and fundamental improvements. The automobile and auto ancillary sectors feature prominently in the investment thesis, supported by favorable market dynamics.

Commodities and chemicals present another area of interest, particularly given early positive signals from China that could benefit the broader commodity cycle. The metals segment also offers valuation comfort in the current environment.

Discretionary consumption emerges as a thematic opportunity, with the next pay commission revision expected to drive demand growth in the coming year.

PSU Banking Sector Outlook

Public sector banks are gaining attention as earnings reports show improving asset quality trends and stable credit costs supporting profitability. The sector presents a combination of favorable factors that distinguish it from other struggling segments.

Over the next three to four quarters, the PSU banking sector appears unlikely to face significant detrimental factors. A lower base could enhance growth visibility, while asset quality risks are expected to emerge only in later periods.

The primary variable to monitor remains potential equity dilution, which could impact sector dynamics.

Quick Commerce Reality Check

Recent developments in quick commerce, particularly reports of scaling back ultra-fast delivery models, warrant a cautious reassessment of valuations. The shift away from 10-minute delivery models could significantly impact business fundamentals and asset utilization efficiency.

The change represents a negative development for the industry, as valuations had incorporated premiums for rapid asset turnover capabilities. Infrastructure underutilization and lower returns on assets could affect cash flow projections and return on equity metrics for affected companies.