2017 wrap: Liquidity-rich markets took GST, note ban impact in their stride

It was clearly the year of mid- and small-caps, which outperformed larger peers as money -- both local and foreign -- poured in

Calendar year 2017 (CY17) has been a good year for the Indian stock market, despit some of the disruptive moves like the rollout of the goods and services tax(GST) and the lingering impact of the government decision to demonetise Rs 500 and Rs 1,000 currency notes late last year. From recovery after demonetisation to investors giving a thumbs-up to GST, from military threats between the US and North Korea to policies of global central banks and the outcome of Assembly elections – markets seem to have taken them all in their stride.
 
It was clearly the year of mid-and small-caps, which outperformed their larger peers as money – both local and foreign – poured in. While the Nifty50 and S&P BSE Sensex rose 31% and 30%, respectively, in CY17, with both the indices hitting life-time highs in the process, BSE Mid-cap and Small-cap indices rallied 52% and 64%, respectively, during the same period.
 
The Indian benchmarks were also among the top 5 globally. The ISE National-100-Turkey (up 45%) and Hang Seng-Hong Kong (up 42%) were the only global indices that outperformed the Indian markets. Meanwhile, the Karachi stock exchange was the only global index ending the year in red, down 17%.
 
Policy changes / reforms such as GST, IBC and RERA also kept the markets buoyant. Strong liquidity, both from domestic as well as foreign investors, also supported the market through 2017. Moreover, improvement in macro numbers post the stabilising of GST implementation and a good offtake during the festive season helped boost growth for various sectors, analysts say.
 
According to Jayant Manglik, President, Retail Distribution at Religare Securities, “The government’s bold reform measures attracted strong liquidity from domestic investors – both retail and institutional – which provided support to the market even in the face of intermittent selling pressure from FIIs. The sub-par performance of real estate and gold as investment options has also aided diversion of capital into equities.”
 
Despite the sharp rally in CY17, most equity strategists are not calling it an end of the bull market yet. They forecast the benchmark Nifty to deliver returns of 10%-15% by December 2018 on supportive global economic growth, and gradual improvement in business sentiment. The returns will mostly be in line with growth in corporate earnings in the CY18, they suggest.
 
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services expects modest returns in CY18 with the S&P BSE Sensex in the 37,000-37,700 range and Nifty in the 11,500-11,700 range by December 2018.
 
“Since valuations are stretched, particularly in the mid-and small-cap space, there is a risk of intermittent sharp corrections in 2018, unlike in 2017.However, the gush of domestic liquidity will ensure that corrections are bought into and the market is likely to sail along supported by earnings growth,” he adds.
 
Sector watch
 
Among sectors, realty and consumer durable indices outperformed by rising over 90% for the year while IT and pharma remained the biggest sectoral losers. Tata Steel, Maruti Suzuki, Bharti Airtel and Reliance Industries were the top gainers in the Nifty50, gaining between 68-76%. Lupin, Dr Reddy’s and Tata Motors were the biggest losers, down between 17-42%.
 
Going into CY18, analysts expect consumption, rural focussed and infrastructure related sectors to do well.
 
Siddhartha Khemka, head of research (retail) at Motilal Oswal Securities, for instance, expects cyclicals like cement, infra and capital goods sectors to benefit from the government spending. “GST beneficiaries like jewellery retail, footwear, building material (value migration from unorganised to organised layers), rural recovery sectors like auto, fast moving consumer goods (FMCG) and vehicle financing will do well in 2018,”he adds.
 
IPO corner
 
Another major highlight of 2017 was a flurry of IPOs. As many as 153 initial public offers hit the Indian stock market this year, raising around Rs 70,000 crore, reports suggest. According to an EY report released on December 20, the fourth quarter (October-December) of this year saw 22 IPOs hitting the market, an increase of 47% quarter-on-quarter (Q- O-Q) in terms of number of deals.
 
Given the trend, analysts now caution against investors blindly taking an investment call while investing in fresh issues.
 
“Currently, there is an unhealthy trend in IPO market. Bulk of the money raised is through Offer for Sale (OFS), from which only existing investors gain. The risk then gets transferred to new retail buyers, especially when the offer price is excessive, as in many cases now. Investors should exercise caution while applying for fresh issues going ahead,” Vijayakumar of Geojit Financial Services says.