Stocks to buy: JM Financial cherry picks 39 stocks amid FII-led stock market crash

Stocks To Buy: The Nifty 50 has seen a sharp correction, falling almost 11 per cent from its September 2024 peak, driven primarily by sustained outflows from foreign institutional investors (FIIs) and concerns over underwhelming corporate earnings. Amid this market volatility, brokerage firm JM Financial has identified 39 stocks—spanning large-cap, mid-cap, and small-cap segments—as potential investment opportunities for investors looking to capitalise on the downturn.

Market Correction and Stock Recommendations

JM Financial noted that during this market correction, 21 per cent of the stocks within its coverage universe have declined by over 30 per cent, 55 per cent have fallen by over 20 per cent, and 72 per cent have dropped by over 15 per cent. The firm believes this broad-based decline presents a window for investors to evaluate fundamentally strong companies across market capitalisations.

Large-Cap Opportunities

In the large-cap space, JM Financial recommended Reliance Industries, which has dropped 21.4 per cent from its 52-week high, along with Maruti Suzuki, which is down 20.1 per cent, and Bharat Electronics, which has declined 17.4 per cent. These stocks offer a target upside potential of 28 to 39 per cent. Other notable large-cap picks include ONGC, Axis Bank, Hindalco Industries, Jindal Steel & Power, Polycab, DL, Havells India, Samvardhana Motherson, Shriram Transport, Bank of Baroda, and Cholamandalam Investment.

Mid-Cap Opportunities

Among mid-caps, Supreme Industries, which has plunged 41.9 per cent from its 52-week high, and Oil India, which is down 37.6 per cent, have emerged as top recommendations. Other attractive picks include Suzlon Energy, which has declined by 34.1 per cent, and BHEL, which has seen a 33.5 per cent correction. JM Financial also highlighted Gujarat Gas, Deepak Nitrite, Marico Ltd, KEI, Global Health, and Metro Brands as mid-cap stocks with robust growth prospects and recovery potential.

Small-Cap Opportunities

In the small-cap category, Zee Entertainment stands out with a staggering 61.2 per cent drop, while HG Infra Engineering has fallen 35 per cent. Other promising small-cap picks include Ahluwalia Contracts, PCBL, Cyient DLM, Star Health and Allied Insurance, Lemon Tree, SAMHI Hotels, Gokaldas Exports, CMS Info Systems, PNB Housing Finance, Balrampur Chini, Bikaji Foods, Techno Electric, and Aadhar Housing Finance.

Structural Drivers of Long-Term Growth

Despite the near-term turbulence, JM Financial remains optimistic about India’s long-term growth story, underpinned by several structural factors. The brokerage highlighted that India’s gross fixed capital formation (GFCF) as a percentage of nominal GDP has been rising for four consecutive years and is projected to reach 31.5 per cent in FY25. Additionally, India continues to benefit from its young demographic advantage, with the largest-ever adolescent and youth population set to support sustained economic growth through 2030.

Moreover, domestic capital flows remain robust, with Systematic Investment Plan (SIP) inflows reaching ₹25,300 crore in October 2024. This level of domestic participation provides a strong cushion against FII outflows and global market volatility.

Impact of FII Outflows and Earnings Concerns

The recent sell-off in Indian equities has been exacerbated by a shift in FII allocations to China, where valuations are significantly cheaper. In September 2024 alone, China recorded FII inflows of $96 billion, bolstered by policy stimulus measures that have made its market more attractive.

Additionally, concerns about corporate earnings have contributed to the market’s decline. JM Financial noted that 66 per cent of the companies within its coverage universe witnessed downgrades to their FY25 earnings per share (EPS) estimates following second-quarter results. A larger proportion of small and mid-cap stocks experienced EPS cuts of over 10 per cent compared to their large-cap counterparts.

The 2024 U.S. presidential election results, which saw Donald Trump and the Republican Party gain control of all three branches of government, have further influenced FII behaviour. With expectations of lower corporate taxes, higher import tariffs, and a stronger U.S. dollar under the new administration, FIIs may continue reallocating funds toward U.S. markets in search of higher returns.

Investment Strategy Amid Volatility

JM Financial believes that the current correction offers a compelling opportunity for investors to reassess their portfolios. The brokerage advised focusing on companies with strong fundamentals and recovery potential, particularly in sectors like banking, manufacturing, and consumer discretionary. While the sell-off has raised concerns, the long-term structural drivers of India’s economy remain intact, making it an attractive investment destination for patient investors, as per the brokerage.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.