Samvat 2076, the Hindu accounting year, began on a positive note for investors, with the benchmark indices edging higher during a special muhurat trading organised on Sunday on the ocassion of Lakshmi Puja. The benchmark BSE Sensex closed up 192 points or 0.5 per cent at 39,250.20 points. The NSE Nifty50 index rose 44 points or 0.4 per cent to 11,628 points.
Investors will be hoping that the new Samvat will ring in better times for the equity markets, compared with Samvat 2075, which turned out to be disappointing and largely a volatile year for investors. While the benchmark indices ended higher, the rally was primarily driven by select blue-chip stocks; the wider markets, especially the midcaps and smallcaps gave negative returns second year in succession.
Between November 7, 2018 to October 25, 2019, the benchmark BSE Sensex rose around 11 per cent. However, the BSE Midcap index ended over 3 per cent lower and the Smallcap index tumbled 10 per cent.
“Long term investors have lost money in many (if not most) of their conviction stock picks, with super-normal returns being concentrated in an ever-narrowing band of high-quality companies. Traders have seen higher volatility with persistent and disruptive changes in corporate strategies, business models, government policies and geopolitics,” said analysts at HDFC Securities.
As we look ahead into Samvat 2076, there are concerns aplenty. India’s economic growth has sharply slowed over the last one year, with the April-June quarter GDP growth coming in at a six-year low of 5 per cent.
Even as non-performing assets at banks have been falling, an acute liquidity crunch in the shadow banking sector has hurt non-banking finance companies, and that has had a huge impact on dependent sectors like automobiles and real estate. A rural distress has also led to a a drop in demand across India’s vast hinterlands for even daily consumption items.
Corporate earnings too have been lacklustre. Despite all the speed bumps, domestic investor flows into equity markets have been steady via systematic investment plans (SIPs). But, the last year has also seen an ebb and flow as far as foreign institutional flows go.
Globally, trade tensions between the US and China remained elevated and geo-political tensions between US and Iran rose. Furthermore, central banks around the world reduced interest rates amid fears of global growth slowing down.
How do market experts see the new Samvat? Is it a good time for investors to pick up quality stocks at a bargain or is more correction expected?
Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services expects markets to remain volatile till economic recovery is visible. However, the government’s stimulus measures, including a cut in corporate tax, has helped lift market sentiments.
“The backdrop for the economy and earnings is improving as we step into new Samvat. The three factors to watch out for would be reducing stress in financial sector, further stimulus announcements by the government to boost consumption and overall economic growth and resolution of US-China trade war,” said Khemka.
The Reserve Bank of India has reduced its benchmark repo rate by 135 basis points to 5.15 per cent so far this year to lift a slowing economy. The government too has stepped in with various measures to stimulate the economy, most notably, a reduction in corporate taxes. What effect these measures will have still needs to be watched out for.
Given the contained inflation and its benign outlook and a supportive central bank, Axis Securities expects the cost of funds to stay low and reduce further, which should support institutional capital expenditure and personal consumption over the next couple of years.
“With stability on political front, pro-business government in place, reducing cost of capital, and growing opportunities as the Chinese companies are vacating the space due to losing competency (either due to high cost of labour or tariffs), foreign investments be it as FDI or FPI is expected to increase in India which would drive growth in the economy,” it said.
According to Angel Broking, the corporate tax cuts announced by the government will increase profitability for companies in the highest tax bracket by 14 per cent. In this backdrop, the Nifty earnings could be raised by 8 per cent to 10 per cent, led by banks and consumer companies. The June-quarter GDP may probably be a bottom, it feels.
Along with the tax cuts, the interest rate reductions, large funds transfer by RBI, improving monsoon, relief for foreign portfolio investors from additional surcharge, should help in reversing sentiments going forward.
“Though mutual fund inflows this year have slowed down somewhat to Rs 35,000 crore as of end August 2019, I am very confident that MF inflows will pick up from here on, as market sentiments improve. I am very confident that the worst is either already behind us or will be very soon and markets would scale new highs by next Diwali,” said Dinesh Thakkar, chairman and MD of Angel Broking.
Broking firm Sharekhan points out that in troubled times its the quality companies with reputed management, strong balance sheet and healthy growth trend that will perform well.
“One needs to stick to basics. Invest in quality companies with a healthy growth outlook and reasonable valuations,” it said.
Once should also build a portfolio understanding the macro-economic conditions, it added.
