Equity Markets Today: Stocks Down 50%, Should you Buy? All Details Here

Seeing the current fall in the equity markets, Kotak Institutional Equities posed this question in a strategy note today: Does a ‘dead’ cat really bounce? It observed that many 'narrative stocks' might have fallen by 30–50% amid recent selloffs but it’s still trading at unfathomable valuations.

Referring to ‘dead cat bounce’, a terminology used for a small and brief recovery in stock prices amid heightened selloffs, Kotak said that a cat may likely be dead if it’s dropped from a sufficient height. The brokerage said that the image will be too grisly to imagine.

Kotak sees Bharat Dynamics, Mazagon Dock Shipbuilders, Cochin Shipyard, Titagarh Rail System, Rail Vikas Nigam Ltd (RVNL), Suzlon Energy, SJVN and JSW Energy as narrative stocks. A slew of PSU stocks are still trading at extremely high value relative to their profits, net worth or assets, the brokerage said.

Kotak said, “Flows have proven (again) to be absolutely useless in figuring out the peak of the market and the subsequent correction (retail inflows into domestic mutual funds have continued unabated), and they will prove useless in predicting the market bottom.”

It said investment stocks are trading at fair-to-full valuations and outsourcing stocks trading at fair-to-full valuations, especially in the context of short-term demand (IT services) and market (pharmaceuticals) risks.

“Only the banks and NBFCs seem to be reasonably valued. Headline market valuations are misleading, given the wide disparity in valuations and a large share of profits of low P/E sectors,” it said.