In 2017, Indian markets clock best returns in three years

In absolute terms, the year closed with the market capitalisation of all BSE-listed companies rising by Rs 45.5 lakh cr to Rs 152 lakh cr

The S&P BSE Sensex and Nifty 50 have delivered 27.9 per cent and 28.6 per cent returns, respectively, in 2017, making it the best year for equities since 2014.

This was on account of strong portfolio flows and hopes of an improvement in economic growth and corporate earnings. Analysts expect the momentum in the markets to continue with a revival in earnings and strong global cues while the effects of demonetisation and GST implementation fade.

In absolute terms, the year closed with the market capitalisation of all BSE-listed companies rising by Rs 45.5 lakh crore to Rs 152 lakh crore, or an increase of 42.8 per cent compared to the closing value on December 30, 2016. These gains, however, include the market value of companies that got listed on the bourse during the year, such as HDFC Life and Avenue Supermarts (DMart).

Market participants said strong support from local and foreign institutional investors had caused a gush of liquidity, helping stocks climb to their lifetime highs. Buoyed by strong inflows into systematic investment plans (SIPs), mutual funds have purchased equities (net of sales) worth Rs 1.17 lakh crore during 2017. Foreign portfolio investors (FPIs) bought Indian equities worth Rs 51,492 crore (close to $8 billion).

India also ended 2017 being among the best-performing markets globally. South Korea, which clocked 37.2 per cent returns in dollar terms, led the pack. 

In dollar terms, the Sensex was up 36.2 per cent and the Nifty 37 per cent. During the year, India’s weight in the MSCI EM (emerging markets) index went up by 47 basis points to 8.72 per cent. India’s weight in the MSCI space now is about 50 basis points higher than at the peak of the previous bull run in 2007.

“India is our number one pick in emerging markets with a cyclical and structured recovery under way. Our view is growth will surprise on the upside next year,” said Robert Subbaraman, managing director and head of emerging market economics, Nomura.

Broader markets outperformed the benchmark indices during 2017 yet again with the BSE 500 index rising 35 per cent. The BSE mid- and small-cap indices soared 48 per cent and 60 per cent, respectively, during 2017.

The year saw the comeback of realty stocks as the BSE Realty index more than doubled.  

“Despite the prevailing market conditions, stock markets seemed to have cheered the realty sector. Factors like implementation of the RERA, investment from private equity funds and foreign institutions in the Indian property market, and policy support on the part of government through an interest subsidy and schemes like ‘Housing for All 2022' seem to have provided a reason for the stock markets to cheer,” said Madan Sabnavis, chief economist, Care Rating.

Buoyancy in banking stocks is another reason for the rally in the benchmark indices as financial services as a sector has the biggest weight in the Sensex and Nifty 50. The Centre’s efforts to resolve the non-performing asset (NPA) issue has provided impetus to banking stocks. 

The rally in state-owned banks remained sluggish until mid-2017 but the announcement of a recapitalisation plan by the government in October helped these stocks reclaim lost ground. HDFC Bank gained 56 per cent during the year, making it the best performing stock in the space.

Shares of Tata Steel went up 87 per cent during 2017, the best by any Sensex constituent. This performance was due to a rebound in global steel prices. Favourable domestic policies to shield the steel industry from imports also helped. Shares of Maruti Suzuki, Bharti Airtel and Reliance Industries gained 83 per cent, 73 per cent and 71 per cent, respectively, during the year.

Continuing headwinds in the US weighed down the performance of healthcare companies during 2017. Dr Reddy’s Laboratories and Sun Pharma lost 21 per cent and 9 per cent, respectively, during the year, featuring among the worst performing Sensex stocks.