Indian equities are off to best start to a financial year since Modi win

Indian equities are off to the best start to a financial year since 2014-15, when Narendra Modi-led National Democratic Alliance (NDA) government came to power. So far this fiscal year, the benchmark Sensex has gained 16.3 per cent, thanks to sharp gains in key stocks. In comparison, the index for the performance of 30 blue-chip stocks had gone up 19 per cent during the first five months of 2014-15. The benchmark indices are currently hovering around their lifetime highs. Also, India is already among the best-performing markets globally this fiscal year.

Index heavyweight stocks, such as Reliance Industries, Tata Consultancy Services, Infosys and Hindustan Unilever, have accounted for the bulk of the gains this fiscal year. The broader market, however, has lagged the index growth, with the BSE Mid- and Small-cap indices gaining only 6.2 per cent and 2.1 per cent, respectively. This is in contrast to the market performance seen in the last four consecutive years, where returns in benchmarks and broader markets were in sync.

Analysts expect returns in the remaining part of the fiscal year could be capped as valuations have surged. Also, key events like state polls and the general election could give rise to volatility. Positive earnings growth along with strong mutual fund flows could support the markets going ahead, they say.

On the other hand, the rupee weakness and rising crude oil prices could prove to be headwinds. Globally, monetary tightening and flaring up of trade tensions between the US and China too pose a risk. The rupee has lost 8.2 per cent against the dollar since the beginning of the current fiscal year, while crude oil price went up by 11.2 per cent.