Samvat 2073: Market stays resilient amid multiple disruptions

As the market draws curtains to an eventful Samvat 2073 at an all-time high, the new one is likely to take it further into uncharted territory.

From the demonetisation drive that sought to curb the menace of black money in the economy to implementation of goods and services tax (GST) bill and a possible delay in the earnings of India Inc, the markets have taken the developments in their stride. At the global level, the surprise victory of Donald Trump in the US presidential election, geopolitical tensions and monetary policies of global central banks impacted sentiment. Yet, the Indian markets notched up gains of around 17% during Samvat 2073.

The market rally during this period has mostly been supported by domestic flows in the absence of a heavy investment by foreign institutional investors (FIIs), who withdrew over $4 billion (nearly Rs 26,000 crore) in just two months since August. During the same period, mutual funds (MFs) bought shares worth close to Rs 50,000 crore.

Going ahead, analysts caution that the pace of local flows will depend on how the economy and corporate earnings shape up. That apart, markets will also track global developments, such as monetary policies of central banks, geopolitical situation and commodity prices, especially oil.

“As expected last year, interest rates have come down and with weak inflationary forces, I do not see any reason why interest rates should go up. The monsoons have been satisfactory for last two years and oil price has remained stable at the low level since January-2015. RBI's foreign exchange reserves have crossed $400 billion mark and rupee has been strengthening, for the most part, since December-2016. Even on the reforms front too, government has implemented GST which will be a long term positive for our economy,” says Dinnesh Thakkar, chairman and managing director at Angel Broking.

"Overall, our macro environment has continued to strengthen and I believe that Indian economy should start doing well from the second half of this year. That said, reforms are not quick fix of the economy, but long term solution to our problems. I have no doubt that our economy has potential to grow at 8-9% in the coming years," he adds.

Analysts at HDFC Securities, for instance, suggest the Nifty50 could correct sharply in the early part of Samvat 2074, but could later revisit the highs and attempt to breach them. On the other hand, analysts at Kotak Securities expect returns in Samvat 2074 to moderate in view of weak near-term earnings growth and higher than average valuations.

“Inflation concerns have resurfaced as reflected by the RBI governor’s monetary policy stance. Plus, earnings growth in FY18 is likely to be subdued. In our view, further upside from the current levels would be contingent on revival of earnings growth and resolution of stressed banking assets,” said Kotak Securities in a note.

Yogesh Mehta, VP-Retail Research, at Motilal Oswal Securities expects the market to remain in a range, albeit with higher volatility.

“The valuations are around ten-year average on 12-months forward earnings multiple. The S&P BSE Sensex trades at P/E of 18.6x, P/B at 2.7x. Market cap-to- GDP ratio is 78% (FY18E GDP) at its long-term average. Valuations look attractive as we expect Sensex EPS to grow at 19% CAGR over FY17-19E as compared to 5.5% CAGR witnessed during FY08-17,” he says.