After a volatile year for stocks, what’s in store in Samvat 2077?

Since last Diwali, both the Sensex and Nifty have risen by 10 per cent

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Diwali seemed to have come early to the stock markets, with the benchmark BSE Sensex as well as the  NSE Nifty50 indices hitting new highs earlier this week. On Friday, as the Samvat 2076 (hindu accounting calendar) drew to a close, markets closed on an upbeat note, with the Sensex rising 86 points or 0.20 per cent to 43,443 levels, while the Nifty 50 was up 29 points or 0.23 per cent to end at 12,719.95.

But, what a roller coaster ride its been for equity investors. Markets hit a new high in January, but, as the COVID-19 pandemic spread across the globe, worried investors dumped stocks. By March 24, the Sensex had plunged 39 per cent to 25,638.90. But, there has also been a sustained rally since and as the country has unlocked in the last few months and key economic indicators have started showing a strong recovery, a renewed enthusiasm among investors has driven the markets to a record; Sensex touched 43,708.47 on Tuesday.

Overall since last Diwali, both the Sensex and Nifty rose close to 10 per cent, despite huge volatility.

How do analysts see the year gone by?

“COVID-19 changed everything for the markets and for the world itself. The COVID challenge has had many ramifications for the businesses worldwide but it has also brought a lot of opportunities for innovative companies,” say analysts at Axis Securities.

Analysts at Motilal Oswal Financial Services point out to the sharp divergences there have been in the year gone by, both across and within sectors and companies as the pandemic had a varied impact on different sectors.

“The essentials (healthcare, staples) and technology/e-commerce businesses were impacted far lesser than the financials, cyclicals and (consumer) discretionaries. In fact, for healthcare and technology sectors, the pandemic acted as a tailwind. On the contrary, financials, especially PSU Banks, bore the maximum brunt of COVID-19,” the analysts noted.

As we head into Samvat 2077, COVID-19 cases continue to surge in many markets across Europe and USA. However, cases have fallen in India since September and active cases are now trending below 5 lakh.

Key economic indicators are clearly showing a strong rebound. India’s manufacturing purchasing managers’ index (PMI) in October was the highest in a decade. The Index of Industrial Production turned positive in September. Automobile wholesales surged 36 per cent in October, although, retail sales are yet to recover to last year’s levels.

“There has been a significant improvement in the COVID situation in India, despite opening up of the economy. We expect the economic recovery to continue from here on led by continued acceleration in the services sector,” said analysts at Angel Broking.

Trillions of dollars in stimulus announced by countries around the world and record low interest rates, meanwhile, have led to strong foreign investor flows into equity markets. Year-to-date foreign institutional investors have pumped in Rs 77,324 crore in India’s equity markets, with Rs 29,436 crore coming in the first 13 days of November alone.

Another round of stimulus expected in the US could further augur well for emerging market stocks.  

“The technical aspects of Indian markets continue to be favourable. Global stimulus ensuring seamless capital flow to EMs, low cost of capital, benign commodity and crude inflation, and US Dollar’s sideway or downward direction all could lead to rerating of stocks,” said analysts at HDFC Securities.  

How could Samvat 2077 pan out?

“It seems more likely that growth is likely to come back strongly looking at the high frequency indicators. The Indian banking system has coped well with the pandemic challenges and it is now flushed with liquidity. Interest rates are low and lending is much likely to pick up strongly in the forthcoming quarters. New home registrations are seeing a solid pick up across the metros and housing loans are surging across the banking system. Even looking at the building materials companies results, the demand scenario looks quite encouraging,” said Axis analysts.

Angel Broking, however, expects the recovery to be uneven. The broking firm, for instance, expects demand for passenger vehicles and low-ticket consumer durables to rebound much faster, while sectors like aviation and retail may take longer time to turn around.

Continued strength in the rural economy could bode well for tractors, agri-chemicals and two-wheeler companies. Government’s focus on infrastructure development and a pick up in housing could lead to a strong demand for cement manufacturers too.

HDFC Securities also sees more upside for software exporters and healthcare companies and it also feels metals could be surprise performers.

 “After a turbulent past year, we can look forward to a relatively sedate but selectively rewarding year. Investors need to look at asset class diversification, sector diversification, spreading investments over time (by way of SIP or staggered investments),” the analysts said.

Analysts at Motilal Oswal say, despite markets hitting a new high this week, they are not overly expensive; for instance, at 18 times fiscal 2022 earnings expectations, Nifty is trading close to its long-period average. Further, abundant global liquidity could continue to support the markets.

It also expects, rural and agri-focused companies, IT, healthcare, telecom, consumer and select financial companies to do well in the new year.

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