Indian equity investors are getting increasingly mature as Dalal Street weathered the storm of major negative events, including demonetisation, Brexit, and the Indian currency hitting new lows (though it closed the financial year with big gains). Benchmark indices ended FY17 with double-digit returns of 17-19 per cent after touching new lifetime highs recently.
MFs — star investorsIn the last 10 years, the Indian markets have delivered double-digit returns in six years. FY17 returns (Nifty) are the fourth-highest from among these six years. Unlike expectations, momentum was stronger across smaller companies with Nifty 500, Nifty Midcap and Nifty Smallcap indices gaining 24-40 per cent. The star investors were mutual funds as they continued to witness resilience in money flows through systematic investment plans. As a result, domestic institutional investors continued to support the markets even as FIIs remained inactive or sellers for a while in FY17.
Most indices hit fresh 52-week highs in FY17, which was the year of cyclicals. The metals index was the star performer, thanks to the rise in commodity prices as well as the impact of weaker rupee. Besides, rebound in the prospects of Vedanta, following merger of Cairn India with it, led to a rally in the shares of Vedanta.
The financial services space also witnessed strong interest for reasons, including continuity of policies on appointment of Urjit Patel as RBI Governor, treasury gains on falling yields of 10-year government securities, falling costs due to demonetisation, strong business growth in non-banking finance companies and the recent hopes of resolution of non-performing assets.
The realty index received a new lease of life following Budget announcements and focus on affordable housing. The auto index lagged other cyclical indices as select automobile companies (two-wheelers, commercial vehicles) faced challenges. The prospects of infrastructure and oil & gas companies also brightened due to traction in the roads sector and stable oil prices.
Demonetisation and anti-protection measures taken by US President Donald Trump led fast-moving consumer goods, pharmaceutical and information technology companies underperforming benchmark and cyclical indices. Public sector entities emerged as the dark horse with the Nifty PSE and Nifty CPSE indices clocking returns of around 40 per cent.