Samvat 2078: What's in store for equity markets?

After a stellar liquidity-driven run in Samvat 2077, experts are suggesting that investors should brace for a volatile phase for Indian equity markets in Samvat 2078. The market direction, they say, will be guided by a host of domestic and foreign factors that will keep the markets choppy. These include:

• Commodity prices and their impact on inflation and corporate earnings
• Policy stance of global central banks, especially the US Federal Reserve
• A fresh wave of Covid infections, if any
• Global developments like economic recovery and China factors
• IPO pipeline and liquidity with retail investors

While rising input prices, especially those of crude oil and coal, have seen the markets trim gains in the past few weeks, analysts at Nomura have pencilled in 0.6-0.7% rise in inflation over the next few months as a result of this. Sonal Varma, chief economist for India and Asia ex-Japan, Nomura, said: “We estimate the impact on headline inflation to be as much as around 1 percentage point over the course of the next six months” As an investment strategy for Samvat 2078, instead of chasing index-wide returns, experts suggest investors look for companies with sound fundamentals, low debt levels and revenue and profit visibility, given the multiple headwinds. Rupen Rajguru, Head of Equity Investments and Strategy, Julius Baer, for instance, expects the frontline indices to give a high single-digit to a mid-double-digit return in the next one year. According to Rajguru:

• High single-digit to mid-double-digit return
• Underperformers will try to catch up
• Economy-facing sectors should do well
• Capex cycle recovery will be a theme to bet on
• Bullish on healthcare, large-cap IT, specialty chemicals

Dhananjay Sinha, managing director & chief strategist at JM Financial sees the Nifty between 16,500 and 18,500 levels going ahead. According to Krishna Kumar Karwa, managing director at Emkay Global, ample domestic liquidity will keep market sentiment buoyant, despite headwinds.

Global liquidity, however, could be at risk as the US Fed starts to taper. He said:

• Not many investment alternatives for investors due to low interest rates
• Liquidity will flow depending on available opportunities
• Tech-led IPOs will get investor’s interest

So, while gains at the index level may not be significant in the upcoming Samvat, investors should brace for a volatile phase in equities now, with good financial and operational performance by corporates getting suitably rewarded at the bourses, despite headwinds. Talking of the market drivers for this holiday-curtailed week, all eyes will be on Manufacturing and Services PMI data for India and the monthly auto sales figures, the outcome of the US Federal Reserve meeting for cues on when the central bank plans to hike rates. On Thursday, the exchanges will hold a special Muhurat Trading session in the evening to usher in Samvat 2078. Bharti Airtel, SBI, HDFC, IRCTC, Tata Motors and HPCL are some of the prominent companies that are scheduled to announce their September quarter results this week.

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