With Indian equities dragged into the emerging market bloodbath, the first impulse may be to sell, but here's one bank's advice on how to identify opportunities amid the downturn.
"The easiest way to identify beneficiaries of such a market fall is to look at companies which benefit from a fall in commodity prices or a lower rupee," said Nomura analysts led by Prabhat Awasthi.
The recent bout of global risk aversion, triggered by concerns over an impending U.S. rate hike and China's economic slowdown, has had a knock on impact on commodity prices, equities and emerging market currencies - and India hasn't been spared.
The benchmark BSE Sensex has declined almost 9 so far this month, hitting a one-year low earlier this week. Meanwhile, the rupee has depreciated over 3 percent against the greenback over the same period.
The fall in India's stocks has been rather indiscriminate across sectors, said Awasthi. Following the recent pullback, the Sensex is trading at a one-year forward price-to-earnings ratio of 14.8 – a 10 percent discount to its five-year average, according to Nomura.
Nomura highlights five stocks that have become fundamentally attractive but also have earnings upside if the current macro backdrop of a weaker rupee and lower oil prices were to stay.
The bank likes Asian Paints, Hindustan Unilever, HCL Tech, Mahindra & Mahindra and Ultratech Cement, predicting upsides of 2.1 percent, 17.8 percent, 21.4 percent, 29.3 percent and 18.1 percent for the stocks respectively over the next 12 months.
Awasthi isn't the only strategist advising investors to dip their toes back into the Indian market following the recent pullback.
Sanjiv Duggal, head of Asian and Indian equities at HSBC Global Asset Management, believes this is an opportune time for investors with a three-to-five-year horizon.