Facebook, Amazon, Apple, Netflix and Alphabet, the parent company of Google, are in the FAANG fraternity have eroded up to two-thirds of their value in 2022 so far.
Netflix has topped among the wealth destroyers, dropping about 68 per cent since January 1. It is followed by Facebook, now known as Meta, which declined more than 40 per cent in 2022.
Jeff Bezos’ Amazon also plunged about a third since the beginning of the current year. The remaining two- Apple and Alphabet have declined up to 20 per cent each.
Market experts said that stretched valuations, rising interest rates due to a spike in inflation and geopolitical crisis are weighing on the market sentiments.
Viram Shah, co-founder & CEO, Vested Finance, said that April was one of the worst performing months for the Nasdaq Composite and the FAANG stocks saw the most significant fall.
“High inflation and Fed indicating that it will raise interest rates going ahead, has also meant that growth in these stocks will likely remain slow in the near future.”
Though, market experts said it’s too early to write them off and conclude if these international titans are losing their sheen. Such companies are long term wealth creators and provide a decent cushion to the investors amid the volatility.
Asheesh Chanda, Founder and CEO, Kristal.AI, said that FAANG stocks are down significantly as the macroeconomic environment has turned hostile to tech stocks. FAANG is not a default buy but is surely a hold decision.
Indian investors are still positive on domestic markets but are not ignoring the depreciation of the domestic currency, he added.
“Hence investors are not converting their dollar investments to rupees.”
According to the data from Vested Finance, despite the buzz of recession, net buying volume has remained constant. Since the
beginning of April, buying volume has increased week over week.
The platform added that the average weekly buying volume per user has remained constant. Also, the number of users who have made deposits in the first 2 weeks of May has gone up by 85 per cent, compared to the first two weeks of April.
Market experts said that these megacaps have a global reach and if one market is down, another is there to offset the impact and trim the losses. However, currently the entire global space is under pressure and might take some time to settle down.
Vinay Bharathwaj Co-founder CO-CEO, Stockal, said that these tech stocks might have a short term impact in the current market but with very good cash reserves and market leadership position they will bounce back.
“The investors have become much more cautious and have started to pick stocks with good fundamentals and stocks which are trading at a discount,” he added. “With depreciating rupee, investors are likely to hold some cash in dollars.”
On the other hand, it is also true that these global behemoths have experienced higher than average volatility in recent times. Market watchers said that correction is not over yet and foresee more pain coming in the near term.
However, according to Shah from Vested Finance, two factors will work in favour of large-cap and mega-cap stocks. First, consumption in the USA hasn’t slowed down and second, megacaps are attractive buys.
“The prominent companies will continue to attract consumers despite a general slowdown across industries. This will benefit the large-cap and mega-cap companies in generating steady cash flows,” he added.
Investors may find an opportunity in megacap counter, given their strong financial and steady cash flows. They have robust capital to withstand market fluctuations and may be in a better position to weather out the storm.
“We are firm believers in the ‘stay invested’ approach, ” said Chanda from Kristal.AI. “However, we are clearly in the latter innings of this cycle, where growth is likely to slow down and investors must position their portfolios accordingly.”
Even at the global level, he has suggested investors to avoid small caps, high yield, lower quality and leveraged investments and rather focus on high quality, megacaps and simple exposures that are less rewarding but also less risky.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)