Sensex, Nifty rise 10% since last Independence Day; what’s the road ahead?

“Domestic equity market has underperformed since last Independence Day with just 9 per cent returns as compared to long-term average annual returns of around 15 per cent,” said G. Chokkalingam, Founder & Head of Research at Equinomics Research.

“High inflation and tight monetary policy across the world including India and the consequent slowdown in economic growth in India led to this underperformance,” said Chokkalingam.

Equity benchmarks the Sensex and the Nifty jumped 10 per cent each in the last one year while the Nifty Midcap 100 index surged nearly 23 per cent and Nifty Smallcap 100 index jumped 24 per cent in the last one year.

Among the sectoral indices, Nifty PSU Bank emerged as the top gainer, rising 57 per cent, followed by the Nifty FMCG index which rose almost 22 per cent.

Nifty Energy (down 2.90 per cent) and Nifty Oil & Gas indices (down 2.13 per cent) failed to perform in this period.

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In the Nifty50 index, 24 stocks rose more than 20 per cent each. Among them, ITC (up 46 per cent) rose the most, followed by Larsen & Toubro (up 44 per cent), Dr Reddy’s Labs (up 37 per cent) and NTPC (up 34 per cent).

On the other hand, shares of UPL (down 25 per cent), Adani Enterprises (down 14 per cent) and Infosys (down 13 per cent) have been the top losers in the last one year.

Manish Chowdhury, Head of Research at StoxBoxhe observed that easing inflation trajectory in India and the US was the primary reason which supported gains in the last one year.

“The subdued inflation raised hopes of a change in the hawkish stance of most central bankers, with a rate cut looking imminent in the next few quarters. Moreover, there was comfort on the domestic macro front, with robust banking credit growth data, strong GST collections, sustained domestic institutional monthly flows, comfortable fiscal and current account position, healthy forex reserves, etc. The strong FII flows in the last few months were also a significant factor which contributed to gains in headline indices in the last few months,” said Chowdhury.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services observed that globally, the US soft landing narrative supported the markets by lifting the mother market US and most other markets. Domestically, the strength of the Indian economy and the huge FPI inflows during the last three months helped the rally.

The road ahead

India’s economy is one of the fastest-growing economies in the world. This gives hope that the outlook for the market till the next Independence Day is bright. However, the country will see General Elections next year which will be a critical factor for the market.

“At least till May 2024, it is likely to be equally tough due to rising oil prices, slowly emerging deflationary conditions in many parts of the world, possible uncertainty from forthcoming elections and stretched valuations of many individual stocks,” Chokkalingam observed.

“The market is likely to be volatile with downward bias till General Elections results come out. Post that market should pick up. If Lok Sabha gets absolute stability then returns by the next Independence Day should be much better (around 12 per cent) as compared to the last one year,” said Chokkalingam.

“Looking ahead to the next year, we are optimistic. Interest rates are stable, inflation is coming down, demand is robust, but having said that as we are moving into an election year, we need to be careful and watchful,” said Shrey Jain, Founder and CEO of SAS Online.

Chowdhury does not expect a sharp correction in markets going forward and advises investors to use any dips as a buying opportunity from a long-term perspective.

“With improving macros and healthy corporate earnings, we continue to prefer domestic themes over export-oriented play. We believe that banking sector stocks, especially the PSBs, have still a valuation catch-up left as we move ahead. Moreover, secular sectors such as FMCG and pharmaceuticals should also be on investors’ radar as these have favourable tailwinds of easing raw material prices and improving demand,” said Chowdhury.

Vijayakumar is moderately optimistic about the market for the next one year.

“Investors can expect around 15 per cent returns in the next one year with the bulk of the returns coming in early 2024. We are bullish on capital goods, autos and auto components, pharmaceuticals and construction-related segments,” said Vijayakumar.

Deepak Jasani, Head of Retail Research, HDFC Securities believes the Indian market has a volatile period ahead due to state and central elections due over the next year. “Corporate earnings are stabilising but inflation and interest rates continue to remain high. Global risk appetite needs to remain positive to enable continued fund flow into India and markets to keep doing well,” Jasani said.

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Updated: 15 Aug 2023, 02:09 PM IST