5 factors that can impact markets in Samvat 2073

Here are five key events that will shape markets in Samvat 2073

With a rise of around 9.5% since the beginning of Samvat 2072 till October 17, the markets have taken all developments in their stride. 

Good monsoon that would boost income in the hands of rural India, keep inflation under check, nudge the Reserve Bank of India (RBI) to lower interest rates and induce spending; and the excess cash in the hands of government employees on the back of 7th Pay Commission recommendation implementation and the passage of the goods and services tax (GST) bill were some of the factors that aided sentiment.

With a gain of around 48% from the beginning of Samvat 2072 till October 20, the S&P BSE Metal index was the top sectoral gainer, followed by oil & gas, consumer discretionary, auto, realty and banking indices that moved up around 16% - 38% during this period. S&P BSE Telecom, information technology (IT) and healthcare indices were along the key losers that slipped 1% - 11%.

 

In the past six years – from Samvat 2066 (calendar year 2010) – when the Nifty50 index surged nearly 23%, the markets have seen positive returns on four other occasions with the benchmark indices rallying between 9% - 27%. On two occasions, however, they lost ground.

KEY FACTORS

So what does Samvat 2073 have in store?

Outcome of the US Presidential elections; strategies adopted by the global central banks; corporate earnings growth in India; commodity prices, especially crude oil; and the progress on reforms, including tackling geopolitical concerns are the five key factors, analysts say, will have a bearing on the markets in Samvat 2073. However, they do caution against market volatility.


 

“The markets have been in a rage bound since the past few weeks in a hope that there will be an economic turnaround. Though the recent macro indicators have been good, it has not translated into earnings growth. This is one key connect that the markets will be expecting in Samvat 2073. Hike in rates by the US Fed, looming threat of Brexit and developments in China are the key risks that the markets will face going ahead,” says U R Bhat, managing director, Dalton Capital Advisors.

Given the likely hood of a turnaround in the economy and a pick-up in earnings, Bhat of Dalton Capital says the markets could see a 10% – 15% upside from here on in Samvat 2073. ICICI Securities, on the other hand, has a one-year forward target of 31,000 for the Sensex and 9,400 for the Nifty.

TIME TO INVEST?

So, should you go ahead and invest? Analysts do advise so, but also caution against the likely volatility and suggest investors buy for the long haul. If inflation continues to remain moderate, the interest rates and deposit rates would come down further. This, they feel, will drive money towards equity markets. 

As regards valuations and the road ahead for corporate earnings, Dharmesh Kant, vice president and head of retail research at Motilal Oswal Strong feels a pick-up in earnings and return to double digit growth in revenue is crucial for markets to move up on a sustainable basis. He expects the S&P BSE Sensex earnings per share (EPS) to grow at 17% CAGR over FY16-18, as compared to 6% CAGR witnessed during FY08-16.

On the other hand, Gautam Chhaochharia, head of India research at UBS Securities believes that growth may remain elusive in the second half of FY17. While earnings should recover mildly in FY17E-18E, he expects cuts to consensus Nifty earnings estimates as H2FY17 growth disappoints. 

“Our base case/ upside/downside scenarios for Nifty are 8,000/8,800/7,000 for 2016-end and 9,400/ 10,600/7,300 (preliminary) for 2017-end, implying unattractive risk-reward near-term,” Chhaochharia says.