Why Samvat 2077 was historic for markets

Despite the record breaking gains by India’s key stock indices Sensex and Nifty in the past one year, experts are not taming down their expectations from the market. They feel that the stock markets will keep hitting new peaks the coming year, which will be driven by high commodity prices, growing demand and record corporate earnings after a near two-year lull due to the pandemic.

Best return in 13 years

The Hindu calendar year Samvat 2077 was historic for India’s stock markets in many terms. Sensex and Nifty gained 40 per cent from last year’s Diwali trading session till date, which was the best in 13 years. The Sensex surpassed 60,000 level on September 24 this year and the Nifty index scaled to 18000 on October 11. The BSE Mid-cap and Small-cap indices outperformed the benchmark indices and gained 75 and 94 per cent, respectively.

For Samvat 2077, the upmove in markets driven inflows from investors across the class. But domestic retail investors played a dominant role. Foreign portfolio investors (FPIs) net buyers of stocks to the tune of ₹1.02-lakh crore. A large amount of FPI flows worth ₹66,000 crore came into the equity markets during 2021.

Metal, realty shine

Samvat 2077 belonged to BSE Metals index that gained 156 per cent, BSE Realty up 125 per cent and BSE Power that rose 115 per cent. The overall mutual fund assets under management (AUM) rose by nearly ₹9-lakh crore to ₹36.74-lakh crore in September.

In the face of historic equity market rally gold remained subdued during the entire 2077. Gold prices were down 4 per cent in last 12 months. However, global crude prices hit their highest in seven years crossing above $85/bbl and were trading at their highest levels since 2014 as demand continued to recover from the Covid-19 pandemic

“The hype of cryptocurrency trading globally has undercut large investments into other assets and commodities even as equity markets continued to remain attractive. Small- and mid-cap stocks are just waking up from a deep slumber and if Samvat 2077 was the year of large-cap stocks, Samvat 2078 may belong to small and mid-cap stocks. The theme will be corporate earnings and demand recovery on an unprecedented scale as India attracts a huge portion of investments that otherwise went to China,” said Kishor Ostwal, MD, CNI Global Research.

At 18,125, the Nifty is trading at 22 times its financial year 2023 earnings, which analysts say will get lower as company earnings start rising. Technical charts too suggest markets could have entered a multi-year bull run.

On a bull run

“Indian markets have embarked on a multi-year bull run which may go on for five years or more. Indian markets currently mimic the US S&P index of 1982 to 2000, which saw a record rally in the index. The bull run pattern was confirmed in November 2020, which is just 1-year old and hence a much much longer way to run. One has to remain invested aggressively in equities for the next few years. Only one has to be cautious when the relative strength (RSI) index, a key gauge of market momentum, nears 80 level. Then there could be a short term correction. RSI is likely to hit 80 in early 2022,” said Rishi Kohli, Managing Director & CIO Quant Strategies, Avendus Capital Public Markets Alternate Strategies LLP.

Kotak Securities has a note of caution for equity investors in the next Samvat since it believes that as the global and domestic economic recovery continues, persistence of supply-side disruptions and commodity prices’ surges pose adverse risks to both growth and inflation.

“Central banks have started reversing pandemic measures gradually. “The rich valuations of the Indian market and of most sectors after the sharp re-rating in the multiples of most stocks from their pre-pandemic levels raise the prospects of a pullback in the market and/or modest returns for a ‘longish’ period of time,” Kotak said in its report.

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