What drove markets down the drain in Samvat 2078?

Indian equity markets’ performance in Samvat 2078 is poised to be the worst in seven years with a near 2% slide each in benchmark Sensex and Nifty indices.

This comes after Samvat 2071 when the two frontline indices had dropped 4% and 3%, respectively.

Analysts attribute the dismal performance in Samvat 2078 to the geopolitical tensions that led to spiralling inflation and hawkish action from global central banks, especially the US Federal Reserve.

Speaking to Business Standard, G Chokkalingam, Founder and Chief Investment Officer, Equinomics Research says, Ukraine war unexpected; rate hikes dampened sentiment. $20 trillion stimulus globally to fight Covid created inflationary pressures. Key risks: Geopolitical situation, oil prices. Expect 15% market return in Samvat 2079. 

The underperformance in Samvat 2078 was sharper in the broader markets, especially in the BSE midcap index, which lost 3%.

However, among stocks, defence PSUs, along with Adani and Tata group shares firmly defied the weak broader market.

Around 207 scrips outperformed the index in Samvat 2078, of which 143 stocks gained over 10%.

Moreover, Adani Power, Adani Total Gas, Adani Enterprises and defence PSUs – Bharat Dynamics and Mazagaon Dock Shipbuilders – saw their market price more than double during Samvat 2078.

Nifty majors ITC and Mahindra & Mahindra, meanwhile, surged 54% and 48%, respectively.

From sectors, the power pack gained the most, followed by capital goods, FMCG and automobiles.

On the flip side, realty, IT, metal, healthcare and consumer durables were the top laggards.

Going forward, experts are betting on select pockets along with small-cap stocks that maintained a lead over frontline indices in Samvat 2078 with a 1% gain.

Chokkalingam of Equinomics Research suggests that investors should avoid cement, steel; but he is bullish on telecom. Banks - private & PSU; select pharma stocks should do well. His dark horse - expect massive wealth creation in smallcaps. 

That said, analysts caution against the near-term texture of the market, which is likely to remain volatile.

As per HSBC Global, the US Fed’s continued hawkish stance, rising dollar and the prospect of recession in the US and Eurozone paint a negative outlook for equities in the near term.

"While India may not be immune to such risk aversion, we see several positives too, and would view market volatility as a good buying opportunity in structurally winning businesses" - HSBC Global

That said, global trends will guide the markets today. The Q2 earnings of index majors – Reliance Industries, Hindustan Unilever, Bajaj Finserv and Ambuja Cement will also be on the Street’s radar.