Ceasefire calm sparks bargain hunting in beaten-down stocks

The renewed appetite triggered a sharp rebound on Wednesday in sectors such as aviation, travel, oil marketing companies, textiles and chemicals, though money managers and analysts are split on whether the recovery is here to stay, or they are mere value traps.

“Getting into beaten names in the hope that they will rebound the most is not the right way of investing in this upturn,” said Dinshaw Irani, MD & CEO, Helios India.

The market sell-off in past five weeks was largely broad-based, but shares in sectors that would be most affected by a shortage in energy supplies, travel and transport disruptions took the heaviest hit. With the two-week ceasefire giving markets a breather, investors are piling on some of these stocks, hoping to ride the momentum, even if it is temporary.

The easing of geopolitical tensions has improved sentiment at the margin. “The current ceasefire represents a meaningful positive for investor sentiment, easing one of the key near term geopolitical overhangs that had been suppressing risk appetite,” said Rajesh Iyer, Managing Director – Global Investment Solutions & Asset Management at LGT Wealth India. “While it does not eliminate broader macro uncertainties, it meaningfully reduces tail risk scenarios and creates room for selective re-rating across equities.”

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Sectors, scarred by war, such as aviation, travel,OMCs, textiles and chemicals draw fresh appetite

Among oil and gas stocks, Hindustan Petroleum Corporation Limited rose 10.12%, followed by Bharat Petroleum Corporation Limited at 7.6%, Indian Oil Corporation at 7%, and GAIL at 5.4%. UPL gained 6% and Navin Fluorine International added 4.2%, among chemicals. In aviation, InterGlobe Aviation advanced 8.09%, while SpiceJet rose 5%.
Not all beaten-down stocks could, however, see equal interest in the foreseeable future.
“During the West Asia conflict, the most battered sectors were aviation, oil marketing companies, paints, chemicals, and auto ancillaries due to surging crude prices and rupee weakness,” said Aamar Deo Singh, Senior VP Research, Angel One. “But what we are seeing is that the stronger bargain-hunting is in quality large-caps within banks, pharmaceuticals, and FMCG, which were not directly impacted.”

The guarded optimism is that some of these sectors could face headwinds because crude prices could remain elevated for a while, said Helios’s Irani.

Oil prices may need to sustain below $80 a barrel for these sectors to find broader investor acceptance. Brent crude prices crashed 15% to $93.96 a barrel on Wednesday

“Banking shares could clock the fastest recovery, followed by new age stocks as they have corrected for no reason,” said Irani. The Nifty Bank index soared 5.7% on Wednesday after the Reserve Bank of India on Wednesday kept interest rates unchanged in its monetary policy.

Autos could also emerge as a contrarian play, according to Garima Kapoor, Deputy Head of Research and Economist at Elara Capital.

“We prefer the auto sector as a sector to bet on after the recent correction,” said Kapoor. “Large-cap auto stocks, like Maruti Suzuki and Eicher Motors, have corrected sharply, witnessing a 17% drawdown since the onset of the US-Iran conflict.”

Vishad Turakhia, MD and CEO of Equirus Securities said that rather than chasing the most battered names blindly, a more balanced approach is advisable. He recommended core exposure to capital goods and private financials, tactical allocation to cyclicals (metals, aviation) and limited exposure to deep value or high-risk rebounds stocks.