Market pinning hopes on revival in Samvat 2072

Sensex, Nifty enter New Year with 0.5% gains; govt's move to relax FDI norms boosts stocks

The special ‘Muhurat’ trading session on Wednesday to mark the beginning of Samvat 2072, the Hindu New Year, ended with gains for the benchmark stock indices, even as investors remained sceptical over near-term prospects, given the headwinds like the impending rate increase by the US Federal Reserve.

The move by the government to ease restrictions on foreign direct investments (FDIs) boosted stocks in the banking, realty and media sectors. In a move likely aimed at easing concerns over reforms taking the back seat after the ruling Bharatiya Janata Party’s (BJP’s) loss in the Bihar Assembly polls, the government had liberalised foreign investment norms for a clutch of sectors, after market hours on Tuesday.

Key banking companies like YES Bank and Axis Bank, realty names like DLF, Unitech and Indiabulls Real Estate, along with construction, retail and media firms, saw a spike in their share prices.

During the one-hour trading session, the BSE Sensex rose 123.7 points, or 0.5 per cent over its previous close, to end at 25,866.95. The National Stock Exchange’s 50-share Nifty added 41.7 points, or 0.5 per cent, to close at 7,825. Both indices ended their five-day losing streak.

The mood of those present at BSE’s historic convention hall to place their token trades remained cautiously optimistic, after a tumultuous Samvat 2071, during which the market climbed as much as nine per cent in the first three months but subsequently came off over 15 per cent from the peak.

According to Raamdeo Agrawal, joint managing director, Motilal Oswal Financial Services, the right time to buy stocks is when the sentiment is weak and investors are sceptical. “Investors with a portfolio of right 10-15 stocks will make money in the market over the next one year,” he said.

In Samvat 2071, the Sensex fell around four per cent, belying expectations of many investors and analysts who hoped the market to extend the gains of 26 per cent made in Samvat 2070, buoyed by a new central government taking office under Narendra Modi.

"We saw the Centre announcing important reform measures after the Bihar results. The government has a five-year term to improve the economic situation. The long-term view on equity is very positive. In the near term, there could be complications, such as the concern over what the US Fed will do in December, how earnings will pans out, and what will happen to MSCI weight of India," said S Naren, chief investment officer, ICICI Prudential AMC.

The Sensex has posted declines in 11 of the previous 13 trading sessions - falling six per cent - on worries over weak corporate earnings and a likely increase in rates by the US Fed at its meeting on December 16.

Investors present at BSE on Wednesday said they were placing token bets on stocks from sectors like banking, automobile and technology, as recommended by their brokers for Samvat 2072. They were more bullish on the mid-cap and small-cap stocks.

Despite the 30-share Sensex ending with losses in Samvat 2071, the small- and mid-cap indices had managed to deliver positive returns. On Wednesday, too, the BSE Midcap and the Smallcap indices outperformed the benchmark, gaining one per cent and 1.5 per cent, respectively. The market breadth also remained strong, with 1,959 stocks advancing and 423 declining on the BSE.

Interestingly, all the 12 sectoral indices of BSE ended with gains - realty, capital goods and healthcare indices outperformed the broader market. Among Sensex components, Axis Bank and Sun Pharma gained the most, at 2.7 per cent and 1.9 per cent, respectively. Hero MotoCorp, Bharti Airtel and ITC, in contrast, fell over 0.5 per cent each.

Analysts believe a possible interest rate increase by the US Fed on December 16, along with a China-led global slowdown, will remain the major near-term headwinds for the market. The Indian markets remained vulnerable to deprecation in the rupee against the dollar which could trigger foreign investor outflows, they said. On the positive side, analysts said the stocks could benefit from lower commodity prices and inflation, and reform measures from the government. Valuation-wise, the market is cheaper now than it was at the start of the previous Samvat; that is another positive according to analysts.

"We believe the market's trajectory is linked to the economy. We see steady gains building up, macro environment staying supportive and politics only moderately ruffled. Any significant market dips could be a buying opportunity," Aditya Narain, managing director & India strategist, Citi, said in a note.