Samvat 2076 proved to be a rollercoaster ride for investors. After dropping as much as 40 per cent during the Hindu calendar year, the Sensex witnessed an unprecedented rebound, helping investors earn respectable double-digit returns.
The benchmark Sensex ended at 43,443 on Friday, clocking gains of 11.2 per cent for the year. The broad-based Nifty50 ended at 12,720, rising 9.8 per cent. The near 10 per cent upswing seen in the markets this month — spurred by Joe Biden’s win in the US Presidential elections and progress in Covid-19 vaccine trails — helped improve the return scorecard for the year, which will be remembered for the sharp selloffs seen in March during the peak of pandemic.
From the lows of March, the benchmark indices have rallied 70 per cent to scale all-time highs. This sharp swing is the highest since 2009 (or Samvat 2065) during the aftermath of the global financial crisis.
"Samvat 2076 was a unique year. We saw the markets hit record highs, fall sharply, and then scale new highs again. We saw the real picture of greed and fear. We saw a bull and a bear cycle in a single year,” Raamdeo Agrawal, co-founder, chairman, Motilal Oswal Financial Services, said. “The year was reminiscent of Lehman crisis, 2001-02, and 1991-93. A big crash sows the seed for a bull run.”
The recovery path for the market after the previous crisis was gradual. However, this time, the fall and the rebound was equally sharp, thanks to the aggressive stimulus measures taken by global central banks, particularly the US Federal Reserve.
Many were left doubting the viability of the rally, given the damage to the economy and the record high price-to-earnings scaled by the markets due to the sharp dent in corporate earnings.
“Valuation is always a medium- to long-term parameter. In the short term, one makes money out of flows and sentiment. The valuation takes a backseat when the sentiment and flows are overwhelmingly positive,” U R Bhat, director, Dalton Capital, said.
Overseas investors poured in close to $10 billion domestic stocks during Samvat 2076. The sharp inflows were credited to near-zero interest rates and aggressive bond-buying programme in the developed world.
Experts said returns for Samvat 2077 could be similar to the year gone by but the volatility could be far less. Given the stellar returns, investors will be hopeful of the economic picking up, they said.
“We think capital flows resulting from improved risk sentiment will drive stocks in the near term. Improvement in sentiment around the pandemic and improving high-frequency growth indicators and corporate earnings as the economy opens up could lead to market overlooking potential growth concerns that can emerge over time,” Saion Mukherjee, head of equity research, Nomura India, said. His firm predicts the market to gain 7 per cent by the end of next year.
Low interest rates and Biden in the White House is expected to keep the equity pot boiling well into the next year. However, corporate earnings growth will be an important factor in driving markets. “Next year the market movement will depend upon earnings growth, whether the low-interest rate scenario continues, the general liquidity in the system and whether the global situation favours the emerging markets," said Agrawal.