Sensex and Nifty fell sharply on Monday extending Friday’s losses, amid a selloff in global markets. Asian markets also traded lower amid speculation that global central banks might be forced to tighten policy more aggressively. At day’s low, the Sensex fell nearly 550 points to 34,520 while the Nifty slumped below 10,600.
What do investors need to do now?
Do not panic and sell good quality stocks (in terms of quality of management and balance sheet) provided valuation comfort is attractive. However, a large number of stocks in the small and mid-cap (SMC) space still remain over-valued – many stocks in this space trade at over 25 to 30 times projected one-year forward earnings, which are more than 100% of their recent historical averages. Hence, as these possible risk factors/uncertainties gradually unfold, we can expect a large number of retail investors getting rid of such over-valued SMC stocks in quickest possible time.
However, the medium to long-term outlook still remains very attractive for both Indian economy and equity markets. Tailwinds from the global economic cues remain highly positive.