Mumbai: Equity markets had a historical journey in Samvat 2076, as it marked a
year of huge volatility, unpredictability, pessimism, divergence and optimism. All in all after a turbulent past year, we can look forward to a relatively sedate but selectively rewarding year, said Brokerages in their outlook for Samvat 2077 which is setting in this Diwali on November 14.
The markets touched an all time high of 12,431 in January 2020 and then hit a 3 year low of 7,511 in March'20 as COVID-19 pandemic gripped the whole world, becoming one of the biggest threats to the worldwide economy.
However, the recovery has been quite sharp as Sensex and Nifty-50 are once again back very near to their all-time high mark. With the pandemic accelerating the shift towards a digital economy, the leadership shifted from banking to the technology sector in Samvat 2076.
USA’s Nasdaq Composite index went up 33 per cent while the Dow Jones index has remained flat. When other economies went for massive fiscal stimulus, India went slow which has impacted India’s GDP in the June quarter.
Now, when most European nations are going in for fresh lockdowns, Indian economy is recovering very fast and returning to normalcy. India has a chance to come out stronger and report healthy growth in CY21/Samvat 2077, provided we don’t see a big second wave of Covid cases.
“We think markets could face some profit taking after the final results of the US Presidential elections sink in. This period also coincides with calendar year-end when tax selling by investors happen. This corrective period could last a few months post which choppy period could follow. In the second half of 2021, we may witness some sustained rise in the indices,” HDFC Securities said.
“The overall structure of the market remains positive. At 18 times FY22 earnings, Nifty-50 valuations is also not very expensive as it is trading closer to its long-period averages. With the economic activity recovering fast, more earnings upgrade cannot be ruled out,” said Motilal Oswal Financial Services.
“From next 12 months perspective, we are positive on IT, Healthcare,
Rural-Agri, Telecom, Consumer along with select Financials. We believe
another round of fiscal stimulus could help elevate sentiment
further,” Motilal Oswal added.
"As we advance towards getting the vaccine (by middle of next year)
and the economy gets back to normalcy, we can expect the economy
driven sectors to outperform the defensives in Samvat 2077. Banks,
NBFCs, automobiles, oil & gas, telecom, utilities, capital goods,
cement and metals could come into focus in Samvat 2077,” said Rusmik
Oza, head of Fundamental Research, Kotak Securities.
The potential upside in most of these sectors based on one year price targets ranges between 20 and 39 per cent (Versus single digit potential upside in Nifty-50). Since most of the economy driven sectors are prone to market correction one should have an accumulation strategy in them rather than investing at one go, Oza said.
The risk-reward balance is less attractive after the recent recovery in stock prices. The earnings yield of Nifty-50 works to 4.5 per cent which is way below the 10- year Government Securities yield of 5.9 per cent. However, the very low global bond yields are supporting flows into risky assets like equities that are keeping valuations at elevated levels, Kotak Securities said.
India still is not out of the woods as far as the Covid pandemic is concerned or its impact on macro or micro is concerned – though latest macro and micro data are encouraging.
According to HDFC Securities, “Key worrying points remain – asset quality at lenders, stress in MSMEs, fiscal deficit, inflation, job creation etc. However, a bull market never requires all worrying points to be eliminated.”
“Markets have witnessed severe polarization in the past few quarters though the mid-cap and small cap segments, after going through tough times, have handsomely bounced back in the last few months. This polarization can again come back in fashion if the recovery in the economy is not broad-based,” HDFC Securities analysts believe.