Now that Diwali is just around the corner, let's see what the past year has brought us and what we expect from the next one.
Samvat 2078 turned out to be a challenging year given the many headwinds, including rate hikes, the energy crisis, the Russia-Ukraine conflict, continued supply disruptions, FPI outflows, heightened inflation, and more.
While these developments inflicted notable changes in the market regimes, especially with higher commodity prices of base metals and crude oil over the first half of the Samvat, a trend reversal was seen in the second half of the Samvat with the majority of commodity prices cooling off primarily due to the policy tightening and the expectation of a slowdown in global growth.
Experts pointed out that in the last one year, the market experienced quicker rotation in investment style and sector preference and the Value theme dominated the first half of the Samvat which exhibited a rising inflationary period. In the second half, however, the market saw a pickup in the Growth theme, which was led by a cool-off in commodity prices, robust domestic demand, and reasonable valuation after the market correction, they noted.
While global markets saw heightened volatility, Indian equity markets proved resilient and outperformed most developed and emerging economies thanks to the country’s robust economic outlook despite multiple headwinds such as volatile macroeconomic developments, faster regime changes, and volatile FII flows.
Since Diwali, the benchmark Nifty is down by only 5 percent while the S&P500 and the emerging market index are down by a whopping 22 percent and 29 percent respectively over the same period.
With continued SIP flows, our DIIs have been continuously supporting the market, thereby counterbalancing the FIIs' selling. Consequently, in this Samvat, the Indian market has emerged from the over-dependence on foreign money and has thus shown remarkable resilience throughout the year, analysts further said.
"Within Indian stocks, Power, Capital Goods, Auto and PSEs performed well in Samvat 2078, reflecting a return of cyclicals to the fore. FMCG also did well as a defensive option, even as ITC got rerated and contributed significantly to the sector returns. On the other hand, Realty, IT, Metals and Healthcare were the main underperformers. IT remained under pressure due to lower visibility into revenue growth due to recession fears in the developed economies and higher wage cost pressures. Metal stocks declined as metal prices fell faster than the cost of raw materials and fuel/power," brokerage house HDFC Securities informed.
Now let's look at what brokerages expect from Samvat 2079:
Going ahead, the brokerage believes Corporate India will likely deliver earnings growth in excess of 15 percent over the next two years given the current economic milieu and provide a plethora of investing opportunities in Indian markets.
However, sticky global inflation will keep central banks hawkish and India will be no exception. Similar implications for global liquidity flows may create medium-term volatility in Indian markets, it noted.
However, if such a scenario materialises, then the same will be a strong opportunity to take exposure to Indian equities, advised ICICI. Its one-year forward, Nifty target is at 19,425 (21x FY24 EPS) with a sectoral bias towards banks, capital goods/infrastructure, and autos, avoiding sectors having more global exposure like IT, oil & gas, and metals.
Given the scenario, the brokerage sees reasonable opportunities across the market spectrum with key filter being quality. It continues to advise investors to utilise equities as a key asset class for long-term wealth generation by investing in quality companies with strong earnings growth and visibility, stable cash flows, RoE and RoCE.
"In Samvat 2079, volatility could continue, though at a slower pace. We may be close to a peak in the rate hike cycle. The resumption of growth at the global level and particularly on the domestic front is required to shake off the sluggish mood and get back on the path of a sustained uptrend in the markets. Though our trust in the abilities of the central bank and government policymakers to ward off any catastrophe is waning, we must reinstate our trust and hope they can steer the global economy out of such an uncertain environment," said the brokerage.
Currently, the Indian economy remains in a sweet spot relative to many other economies, given the large demography, higher domestic dependency, as well as the astute handling of uncertain times by politicians and the bureaucracy, however, any prolonged delay in the resurgence of growth globally could hold back India’s growth story in the interim, it added.
This is despite the fact that India is in a very good position to withstand such times compared to a lot of other countries, noted the brokerage.
Stepping into Samvat 2079, there is certainly the potential for more volatility in the near term given global uncertainties. Nevertheless, Indian equities offer an attractive opportunity for investors on the back of growing conviction on a multi-year economic upcycle in India, said Sharekhan.
Corporate earnings are also likely to sustain the healthy momentum seen in the past eight consecutive quarters. Despite the potential global slowdown, Nifty earnings are estimated to clock a decent 15 percent CAGR over FY22-FY24E, while an over 20 percent earnings growth is expected in BSE200 over the same period, it predicted.
This year, the brokerage is focussing on the theme of leveraging on domestic upcycle and consumption play. It said that it remains constructive on equity as an asset class and more so on the India growth story. It advises investors to use the market volatility to construct a quality portfolio for long-term wealth creation.
Samvat 2079 now looks much brighter and more promising, said Angel One.
"The Indian economy stands in a sweet spot of growth and remains the land of stability against the backdrop of a volatile global economy. We believe the relative outperformance of the Indian market will likely sustain in Samvat 2079 as well and would be led by favorable macroeconomic factors and better-than-historical fundamentals of Indian corporates," believes the brokerage.
While the country’s macro set-up is positive, the fundamentals for Indian corporates have also improved, noted the brokerage adding that profitability across the board has also improved significantly.
The cumulative and rolling net profit of the NSE 500 universe for the last 4 quarters (till Q1FY23) touched an all-time high of ₹10 Lc Cr and loss-making sectors, too, have turned positive and contributed notably to the net profitability, noted the brokerage.
Thus, in light of these positive attributes, Angel One firmly believes that the outperformance of Indian equities seems highly sustainable in Samvat 2079.
Factoring in all these economic and market developments, Angel One has come out with the following themes for SAMVAT 2079:
- Housing and Banking will be major themes to watch out for in 2023 because of their improved economic outlook and the pick-up in credit growth. Moreover, affordable housing may even get a further push in the upcoming budget, said the brokerage.
- Consumer space is witnessing a strong revival and many categories are normalizing to pre-Covid levels with a structural uptick in multiple sub-segments. Quick-service restaurant space is also well-placed to deliver superior returns.
- Demand momentum in the CV segment is likely to sustain and we expect the CV cycle to maintain its momentum, driven by the pick-up in economic activities and the government’s focus on infrastructure.
- With a pick-up in the real estate and housing demand, the home improvement theme has bolstered and continues to be robust in 2023.
- Travel & Tourism stands to be a more promising theme, which has further gained momentum post a pick-up in the vaccination drive.