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The Benchmark Nifty edged higher on Friday to end Samvat 2079 with double-digit gains. The index finished the Hindu calendar year at 19,425, with gain of 1,849 points, or 10.5 per cent. The Sensex, meanwhile, rose 9.4 per cent during the year to close at 64,905.
Both the indices hit lifetime highs during the year, but their upside was capped by rising bond yields in the US, which led to heavy bouts of selling by foreign portfolio investors (FPIs).
During the previous Samvat 2078, both the benchmark indices had finished marginally lower. The highlight of the year was the stellar returns delivered by the broader markets. The Nifty Midcap 100 rose 32.7 per cent, while the Nifty Smallcap 100 index gained 38.4 per cent — their best showing in nine years (since Samvat 2070). The gains were driven by strong domestic flows, both from institutions as well as retail investors.
When compared to global peers, India’s returns were in the middle of the pack. Developed markets, such as the US (S&P500 and Nasdaq), Europe (Germany and France), and Japan, outperformed. The domestic markets, however, fared much better among emerging markets (EMs) with China, Brazil, Thailand, and Indonesia delivering negative returns.
Samvat 2079 was punctuated with turbulence amid headwinds such as sticky inflation, interest rate tightening by the
US and other central banks, geopolitical tensions, and banking crisis in the US.
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The Indian economy, however, was seen as a bright spot amidst global economic distress.
Despite that, global developments led to intense selling from FPIs between December 2022 and February 2023 and more recently in September and October. In March, the benchmark indices fell to their lowest levels in eight months.
The rebound from this year’s lows in March was driven by a change in sentiment amidst optimism that the US Federal Reserve would not be as aggressive with rate tightening and hopes that the global economy would avoid a recession. This led to a reversal in FPI flows, helping domestic markets stage a sharp rebound.
In September, the Nifty made lifetime highs of 20,222 (intraday basis), while the Sensex hit a record of 67,927. From the highs, the markets are down about 4 per cent at present.
“At the start of the year, India saw some diversion of foreign flows in anticipation of strong economic recovery in China after its reopening. However, that did not quite play out as expected. It is reasonable to expect that India will remain firmly on investors’ radars. Still, there could be some underperformance if Chinese data starts to improve,” said Abhiram Eleswarapu, head of India Equities, BNP Paribas.
Strong earnings growth estimates and positive macroeconomic numbers saw many global brokerages upgrade domestic equities in recent months. JP Morgan, Morgan Stanley, CLSA, and Nomura are among the brokerages that have recommended higher allocations to India in the EM pack.
“This is the best macroeconomic situation in the country in a while. Despite the war raging in two continents and the Federal Reserve hiking rates, the Indian market continues to give double-digit returns. And underpinning those returns is the corporate earnings growth,” said Saurabh Mukherjea, founder and chief investment officer of Marcellus Investments Managers.
Many believe largecaps could continue to deliver double-digit returns in Samvat 2080 but returns for the broader markets could moderate after this year’s stellar returns.
“Earnings side is looking good. And we are expecting double-digit growth in the next year. Retail participation is relentless. These two tailwinds will provide the strength to navigate the potential headwinds on account of the geopolitical situation and the trajectory of rate hikes. I would be optimistic on the next Samvat,” said Raamdeo Agrawal, founder and chairman of Motilal Oswal Financial Services.
On the impact of the general elections in May 2024, Mukherjea said poll results had not had any lasting bearing on the stock market, except causing some short-term turbulence.
Even on valuations front, many said there was comfort emerging as the Nifty’s 12-month forward price-to-earnings multiple had now slipped below historical averages.
