Looking for bargains? Keep this watch list handy during the market correction.

Just before the correction, there was a huge anomaly in the market – small caps were trading at a significant premium to large caps. The median price-to-earnings (PE) ratio for small caps (companies ranked 251st onwards in terms of market cap) had risen to 34.5, compared to 24.5 for large caps (the top 100 companies by market cap).

This neither made sense on an earnings basis, nor in terms of trailing earnings growth.

In fact, according to the RBI’s latest financial stability report and Bloomberg estimates, there has been a huge gap between estimated earnings growth versus the earnings growth required for the Nifty Smallcap 100 Index to justify its valuation.

Also read: 10 defence stocks poised for explosive growth in India’s year of reforms

As you can see from the chart below, while this gap exists across market caps, it’s the highest for small caps.

View Full Image

In other words, small caps were expensive even if you factored in future growth. As such, the recent correction isn’t surprising.

Now, we don’t know if the markets will rebound soon or if the correction will be deeper. That’s something to worry about only if you invest for the short term. If you are a patient, long-term investor, Mr Market is likely to offer you decent bargains, so it’s time to get your watch list ready.

Speaking of which, we would like to share a specific filter with which we have been screening stocks for some time now – insider purchases from the open market.

Also read: These five beaten-down stocks could be massive winners in 2025

While this is an interesting metric to track across market cycles, its relevance has increased in recent times. That’s because this is a time when insider buying activity is in stark contrast with overall insider activity trends.

You see, since 2018, insider selling is up six times. Sales by promoters in the primary and secondary markets has been at record levels.

View Full Image

A set of promoters are busking this trend and buying their stock from the open market.

Promoters generally have the biggest stakes in the businesses they own. They are also the most knowledgeable about what’s happening in the business and the industries they operate in.

If they are willing to buy more stock of their company from the open market, it shows they are confident in the business. This is something that outsiders may take a while to figure out.

Also read: Top 5 high return stocks to watch out for in 2025

Here is a list of stocks that have seen sizable open market purchases by promoters and other insiders in recent months. I have focused on the ones with a respectable quantity of shares purchased and those trading lower than or close to the average buy price of insiders.

View Full Image

Please do not take this as a recommendation. No view is being implied through the table above. These are just stocks we believe deserve to be on your watch list and they all need further research. After all, it’s not often that the market gives retail investors a better deal than promoters.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com