Muhurat trading and Samvat 2073: Investors keep fingers crossed

US Presidential elections, Fed meet in December and global uncertainty inhibit sentiment

The special Muhurat trading session on Sunday to mark the beginning of Samvat 2073, the Hindu new year, ended with marginal losses for the benchmark stock indices as investors remained cautiously optimistic about the near-term market direction. 

The US elections, uncertainty over the global economy and the scheduled US Fed meet in December seemed to have influenced investor sentiment.

During the one-hour trading session, the BSE Sensex slid 11.3 points, or 0.04 per cent, over its previous close, to end at 27,930.21. The National Stock Exchange’s 50-share Nifty shed 12.3 points, or 0.14 per cent, to close at 8,625.7. 

Despite the marginal slide, the mood of those present at BSE’s historic convention hall to place their token trades remained upbeat as they viewed India as a sweet spot among emerging markets and were positive about the country’s long-term prospects.

“The bull market is still intact.  The broader indices are showing good underlying strength and there are no signs that the market is topping out. So my advice to investors as always is that instead of trying to time the market they need to focus on spending enough time in the market,” said Ramesh Damani, one of the veteran investors present for the Muhurat session.

Top Sensex gainers on Monday included Lupin (1.85 per cent) and Wipro (0.71 per cent) while top losers were Dr Reddys (1.05 per cent) and NTPC (0.66 per cent). Fifteen of the Sensex components declined, 14 advanced, while one remained unchanged.

“India has been one of the best performing markets so far in 2016. After four quarters of negative quarter-on-quarter returns, the Sensex has delivered positive quarter-on-quarter returns in the last two quarters. I expect the trend of positive returns to continue over the next 12 months,” said Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services.

According to S Naren, ED and CIO, ICICI Prudential AMC, the outlook remains positive from a two-year perspective. “The benefits of a good monsoon, policy implementations, earnings bottoming out will likely act as a trigger for the next round of up move. However, one cannot discount the probable risks completely which seem to be more global in nature than local.”

Samvat 2072 saw benchmark indices rally between 8-10 per cent, buoyed by a sharp rally post the Union Budget on February 29. Unlike the start of the Samvat 2072, when the Street was gripped with pessimism, market players are positive on the economic and market prospects this time round.

“We expect returns in Samvat 2073 to be better than 2072, notwithstanding intermittent bouts of corrections and profit-booking,” said a note by Kotak Securities.

Experts believe the outcome of the US Presidential elections, the Fed meet in December, the strategies implemented by the global central banks and the direction of the commodity prices globally will influence market direction in Samvat 2073. Domestically, corporate earnings growth as well as the progress on reforms will be keenly watched.

According to Oswal, while the US presidential elections and the Fed meet could result in short-term volatility, it will not impact the longer-term outlook for India. On the other hand, the implementation of the Goods and Services Tax (GST) could have a material bearing on the long-term health of India Inc. “If there are positive surprises on the actual rates, we could see a run-up in Indian equities,” said Oswal. 

Valuations, however, do remain a concern with some market participants. The small and midcap indices made all-times highs in Samvat 2072 and are currently trading above the long-term average valuations. BSE mid-cap and BSE small-cap indices rose 24 per cent and 20 per cent, respectively, in the period. In contrast, large-cap indices haven’t seen such sharp appreciation, with the BSE Sensex surging about eight per cent. 

“The market valuation today is clearly not cheap even though we are of the view that the underlying economic cycle is improving. And this is clearly a bottleneck when it comes to expecting good returns, in the near to medium term,” said Naren. 

According to Kaustubh Belapurkar, director, fund research, Morningstar Investment Adviser, the sharp appreciation in small- and mid-cap stocks has led fund managers to become more cautious of the space and opt for a stock-specific approach, with a greater focus on management quality and growth potential.

Some experts, however, believe there are enough pockets of opportunity available for stock-picking.

“While there is a perception that Indian equities might have run ahead of their fundamentals, I believe Indian equities remain attractive. In terms of one-year forward P/E or P/BV, the Sensex trades near its 10-year historical averages. India’s market-cap-to-GDP ratio is below its 10-year average,” said Oswal. “Looking at valuations from an aggregate index perspective might give you an incorrect picture. You need to do your research bottom up and as far as I’m concerned there are enough pockets of opportunity available,” added Damani.

In the past year, Indian equities have received foreign institutional investor flows of around $5.8 billion (about Rs 38,500 crore). Market players expect the tally to increase in the next year as India, although expensive, remains one of the most promising markets globally. 

“Given the India growth is robust at a time when developed markets are facing benign growth situation, India will continue to remain a sweet spot among the emerging market basket for foreign investors,” said Naren.