Govt action, global economy hold key for Samvat 2071

But much depends on govt action & global economy; Sensex gains in 2070 the biggest in five years

Bullish trends and a positive investor sentiment are likely to continue well into Samvat 2071. The Indian equity market’s prospects for next year remain healthy, though a continuation of the government’s economic reforms and global events will be key drivers, say experts.

The just-concluded Samvat 2070, has been good for Dalal Street in more ways than one. India’s benchmark indices exceeded their respective all-time highs and gained for a third straight (Hindu calendar) year. The BSE Sensex ended 2070 at 26,787.23, gaining nearly 5,600 points, or 26 per cent, during the Samvat — the most in five years. It was also one of the few years during which the flows from foreign institutional investors (FIIs) were more than Rs 1 lakh crore.

Most market players expect the 30-share Sensex to be above the 30,000 mark and the National Stock Exchange’s 50-share Nifty to be near the 9,000 level by next Diwali.

A turnaround in economic growth, a drop in inflation and an easing of the interest rate cycle are seen as tailwinds for the Indian market. Meanwhile, slowing global economies, especially those of China and some European countries, and the likelihood of the US ending its stimulus programme and subsequently tightening interest rates, are seen as critical headwinds.

In recent days, the Indian market has been buoyed by the government’s policy announcements, such as decontrol of diesel prices and opening of the coal sector.

“For markets, we believe a multi-year bull run is in the making. But continuous reforms will be needed to sustain the bull run,” said IIFL Chairman Nirmal Jain.

The ruling Bharatiya Janata Party (BJP), which kicked off the economic reform process after the state elections in Maharashtra and Haryana, is expected to continue keeping its foot on the pedal, as there are no major Assembly elections in the near future.

“All the reforms announced by the government are outright positive for the market. They will have a larger impact and boost the confidence of foreign investors,” said Raamdeo Agrawal, co-founder & joint managing director, Motilal Oswal Financial Services. He expects software stocks, pharmaceuticals, state-owned banks and consumer stocks to do well.

Besides the government initiatives, an uptick in the domestic economic growth during the April-June quarter and a decline in inflation in September are seen as positive signals for the market.

“India is one of the few markets where the political situation is stable and the macroeconomic situation is also improving. Foreign investors continue to be very interested and flows are expected to remain strong,” said Edelweiss Financial Services Chairman & Chief Executive Rashesh Shah.

Agarwal, however, said the situation in Europe could pose a challenge for equities. “The euro zone economy is facing huge challenges and a recovery is running out of steam. This will somehow impact India as well. Passive allocators are going with the general weak trend,” he said.

Experts also said India, despite its macro situation improving, remained vulnerable to global events like an increase in interest rates in the US, or the euro zone slipping into recession.

In the past month, the Indian market has seen a slight correction and sell-off by FIIs to the tune of $1 billion, on negative global news flow.

On the positive side, the domestic institutional investors are providing the Indian market a cushion from sale by foreign investors.

Nirakar Pradhan, chief investment officer, Future Generali India Life Insurance, believes investors should still invest in equities, despite strong gains in the past year. He cites improving economic growth, easing inflation and oil prices, besides government reforms and sustainability of corporate earnings growth to make the case.