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Even as the BSE Sensex and the NSE Nifty delivered impressive returns of 23 per cent and 24 per cent, respectively, Indian stock markets had its fair share of troubles in Samvat 2080.
Threats such as geopolitical tensions between Iran-Israel and Russia-Ukraine, along with delayed interest rate cuts amid sticky inflation, unexpected Lok Sabha 2024 (General) elections, sporadic and uneven monsoon, and heavy foreign investors' selling, especially in October 2024, weighed on market sentiment.
As we step into Samvat 2081, several risks are on the horizon that could impact the markets. Here's a checklist:
1. FII outflows
From the start of Samvat 2080 (November 12, 2023), till October 29, 2024, foreign institutional investors (FII) have net bought equity worth Rs 86,928 crore. However, the current month so far has seen outflow of Rs 88,818 crore from domestic equities amid FIIs move towards cheaper China and Japan markets.
"Numerous challenges could hinder FII inflows in Samvat 2081, including higher interest rates in developed markets, persistent inflation, policy concerns, and high market valuations," said Ajay Garg, director and CEO, SMC Global Securities.
2. Valuation concerns
Amid a record breaking run in the early part of calendar year 2024, the trailing 12-month price to earnings (P/E) ratio of the BSE Sensex and the Nifty50 stood at 24.1x and 23.7x, respectively, as of October 28, 2024. By comparison, the Sensex's 5/10-year average was 24.1x/25.6x and Nifty's 5/10-year average was 23.7x/24.8x, rendering the Indian markets expensive.
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While this was one of the triggers for profit booking this year in October, analysts say cheaper Chinese markets are also taking away funds from India. If the recently announced stimulus package boosts the Chinese economy, the outflows from Indian markets may be higher in Samvat 2081.
China's Shanghai P/E is at 15.9x and Hong Kong's Hang Seng's P/E at 11x at present.
3. Slowdown in corporate earnings
Earnings growth, so far, has remained sluggish in the second quarter of the current financial year (Q2 FY25). As per a Business Standard report, the net profit (adjusted for exceptional items) of 167 firms grew just 5 per cent Y-o-Y, sharply lower than the 16 per cent Y-o-Y expansion in the same period last year.
If the trend continues, investor confidence may wane, leading to increased selling pressure in Samvat 2081.
4. Geopolitical tensions and oil prices
The tensions between Iran-Israel, and Russia-Ukraine have kept investors on the edge in Samvat 2080. G Chokkalingam, founder, Equinomics Research believes if the ongoing wars between Iran-Israel and Russia-Ukraine extend and other countries participate as well, political tensions can lead to stress in the Indian markets.
Moreover, any escalation in the West Asia war may jack up oil prices as the two countries are major oil exporters in the world.
5. Inflation and monetary policy
Higher oil prices, coupled with higher vegetable prices due to uneven monsoon, may keep inflation at uncomfortable levels for policy makers. A delayed interest rate cut, thus, would dent the market sentiment.
Gaurang Shah, head investment strategist at Geojit Financial Services believes that for the Reserve Bank of India (RBI) to cut rates, inflation has to stay below 4 per cent for a longer duration.
"Ease in inflation for just a month or a quarter, may not be desirable for cutting rates," Shah said.
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