After eight consecutive sessions of gains and a string of record highs, domestic market benchmarks the Sensex and the Nifty witnessed some profit booking in morning trade on December 2.
Sensex opened 306 points lower at 62,978.58 on December 2 against the previous close of 63,284.19 and fell more than 400 points soon. At 11:05 am, the index was 383 points, or 0.61 percent, down at 62,901.
This has been the trend of the market lately; after some gains, participants embark on profit booking. For many, this makes sense because the headwinds of rate hikes, recession and geopolitical issues have not faded away. Premium valuation of the domestic market is a fresh concern that analysts have started to point out.
The market has seen above-average volatility this year. The Sensex hit its 52-week low of 50,921.22 on June 17, 2022, and on December 1, 2022, it hit its all-time high of 63,583.07. In a five-and-a-half-month period, Sensex jumped almost 25 percent.
Is it the right time to be in the market?
If you are a long-term investor, it is one of the best times to be in the market. The long-term outlook for the Indian market is upbeat and analysts point out that the economy is on a strong footing to grow at a healthy pace.
The September quarter (Q2FY23) GDP print grew 6.3 percent, meeting market expectations. Goods and Services Tax (GST) collections for November 2022 stood at ₹1,45,867 crore. This was the ninth consecutive month when collections from GST remained above ₹1.40 lakh crore.
India’s manufacturing sector continued to gain momentum in November. S&P Global Purchasing Managers’ Index (PMI) was 55.7 in November, up from 55.3 in October.
The US and most parts of Europe are expected to see a recession in the near future but analysts do not see a material impact of a slowdown in the West on India even though it cannot decouple completely from the global trend.
"While the developed markets may face a recession, we believe India will not be in a similar situation. Our belief stems from the fact that India's growth story is largely domestic and hence the impact of any global stress will be relatively minimal. Any potential impact will be temporary, and we will be able to revive faster," said Chintan Haria, Head of Product Development & Strategy, ICICI Prudential AMC.
Mark Shirreff Matthews, Head Research Asia, Julius Baer, believes next year, India should have the highest economic growth among the major world economies.
"We expect earnings per share (EPS) growth of 15 percent per year over the next two years. We maintain our 'overweight' stance on India and increase our target on the broad Sensex index to 70,000," said Matthews.
Higher CAPEX by the government and the private sector is expected to boost the economy and eventually the market.
"Record-high tax collections, coupled with credit losses at a six-year low, are fuelling more infrastructure spending by the government. After a hiatus of ten years, the capital expenditure cycle by the private sector is also gaining momentum, and corporate balance sheets are healthy, while capacity utilisation is in need of expansion. Based on this, India should have the highest GDP growth among the major world economies next year," said Matthews.
The strong influx of retail investors is another factor which is expected to sustain the market.
Matthews expects SIP-backed flows to increase, as the middle class is set to increase to 60 percent of the population by 2047, from 31 percent last year.
Overall, the long-term prospects of the domestic market look strong even though the market may remain on a volatile track for the short term, maybe for the next six months, reacting to macroeconomic developments, earnings, global cues and rate hikes. The key is to take advantage of this and add quality stocks on dips.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of MintGenie.