Nifty down nearly 10% from peak, JM Financial picks 39 stocks amid FII sell-off

The Nifty 50 has plunged 9.5% from its September 2024 peak, driven by foreign institutional investor (FII) outflows and concerns over corporate earnings, prompting brokerage JM Financial to spotlight 39 stocks as investment opportunities amid the market turmoil.

The JM Financial report highlights an investment list of 39 stocks, spanning large, mid, and smallcaps, selected based on their correction of over 15% from 52-week highs and potential for future growth.

Large-cap recommendations

Large-cap recommendations from JM Financial include Reliance Industries, which has declined by 21.4% from its 52-week high, Maruti Suzuki, down by 20.1%, and Bharat Electronics, which has seen a 17.4% drop. These stocks are expected to offer a target upside potential of between 28% and 39%. Other stocks in the large-cap recommendations include:

ONGC, Cholamandalam Investment, Samvardhana Motherson, Shriram Transport, Havells India, DL, Polycab, Jindal Steel & Power, Bank of Baroda, Hindalco Industries and Axis Bank.

Mid-cap recommendations
In the mid-cap space, the report suggests Supreme Industries, which has fallen by 41.9%, from its 52-week high, and Oil India, down by 37.6%. Other notable picks include Suzlon Energy, which has declined by 34.1%, and BHEL, with a 33.5% drop. These stocks are identified as having strong growth prospects and target upside potential in the medium term. Other stocks in the mid-cap recommendations include:

Global Health, Gujarat Gas, KEI, Metro Brands, Deepak Nitrite and Marico Ltd.

Small-cap recommendations
Among small-cap stocks, Zee Entertainment, with a significant 61.2% decline, and HG Infra Engineering, which has dropped 35%, stand out as notable picks. Other stocks in the small-cap recommendations include:

Ahluwalia Contracts, PCBL, Cyient DLM, Star Health and Allied Insurance, Gokaldas Exports, Lemon Tree, SAMHI Hotels, PNB Housing Finance, CMS Info Systems, Balrampur Chini, Bikaji Foods, Techno Electric, and Aadhar Housing Finance.

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The correction has resulted in significant declines across sectors, with 21% of the brokerage's coverage universe seeing drops of over 30% from their highs.

Amid the turbulence, JM Financial suggests this correction offers a ripe opportunity to reassess Indian equities, citing long-term structural growth drivers such as rising gross fixed capital formation, sustained domestic capital flows via SIPs of Rs 25,300 crore in October, and India’s young demographic advantage.

The brokerage said it remains optimistic about India's long-term prospects but advises investors to stay selective and focus on companies with strong fundamentals and recovery potential.

The sell-off, which began as a “Sell India, Buy China” trend, was spurred by China's policy stimulus, making its market more attractive with valuations half that of India’s. In September alone, China recorded $96 billion in FII inflows. Meanwhile, apprehensions around second-quarter earnings have exacerbated selling pressure in India, with 66% of JM Financial’s coverage companies experiencing FY25 earnings per share (EPS) downgrades, the brokerage said.

JM Financial also pointed to the potential shift of FII money back to the U.S. following the Republican victory in the 2024 elections, as expectations of fiscal stimulus, higher interest rates, and a stronger dollar could draw capital back to American markets.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)