Stock market in a dull phase: Reasons behind the slowdown and investment ideas

Indian markets have been seeing a sluggish movement for the last couple of sessions, with almost no major trigger pushing stocks higher. Investors are trying to understand why the momentum has faded and where they should put their money at a time when mid-cap and small-cap stocks continue to face pressure.

Speaking about what is weighing on sentiment, market expert Ambareesh Baliga said the biggest trigger expected was the US-India trade treaty.

“Now we don’t know as to when finally it will happen, whether it will happen in January or whether it will happen in March. So I think that’s on the back burner as far as the markets are concerned as of now,” he said.

Baliga added that the deeper pain is showing up in mid-cap and small-cap stocks. “We’ve seen a very sharp decline, although we saw some amount of fall back recently, but that’s nothing compared to the sort of fall which we’ve seen,” he said.

He pointed out that despite the weakness, mutual fund flows remain strong and macro numbers are stable, with Q2 earnings turning out better than expected. “If the Q3 earnings also show a similar trend, I think the state would be set for a good rally… If one has the confidence and the courage and liquidity, this is a good time to start investing again,” he said.

A key talking point has also been the possible increase in FDI limits for PSU banks. Baliga said he expects the move to go through. “The FDI limit will be increased. At the same time, over the next few months, we’ll also see consolidation happening as far as the PSU banks are concerned… Finally, I think we’ll have only about four or five banks,” he said. He added that PSU banks remain attractive because of improved balance sheets and steady earnings growth. “I think we should see a very good rally over the next nine to twelve months,” he said.

On stocks and sectors to consider in the current market, Baliga said he prefers businesses with strong demand visibility. “I would buy something like a Varun Beverages… they have been able to maintain their market share. Now they’re getting into Alcobevs… Varun Beverages, in fact, have a target of about six or nine to twelve over the next possibly eight to ten months,” he said.

He also remains positive on Glenmark Pharmaceuticals. “They have a target of 200. It’s the fastest growing detectable manufacturing company in over 60 countries,” he said.

If the US-India trade deal goes through, Baliga believes textile stocks could bounce back. He added that he stays constructive on consumption and auto as demand has shown improvement after GST reforms.

As markets wait for clarity on global cues and the upcoming Budget, analysts say investors should stay selective, focus on quality stocks and avoid chasing high-valued small caps until broader sentiment improves.