By Urvashi Valecha
For the markets, Samvat 2076 has been a roller-coaster ride, as the benchmarks swung from all-time highs to their March lows. As the year comes to a close, markets are at new highs, with the Nifty50 generating returns worth 9.05% for Samvat 2076. After such wild swings, market experts believe that expectations from Samvat 2077 should be muted. The Nifty touched a three-year low of 7610.25 on March 23 as panic gripped the markets. Since then markets touched an all-time high in November, crossing the 12,600 mark on November 10, taking returns to 8.3% for Samvat 2076.
However, market experts believe that the returns coming next year are likely to remain muted. They have attributed the-better-than-expected results in the September quarter to cost savings, which is only partly sustainable. S Hariharan, head – sales trading, Emkay Global Financial Services, said, “Profit margin expansion seen in the last quarter stems from cost savings, some of which may be sustainable, and reduction in marketing spends, which would almost certainly not be a sustained phenomenon. As a result, a part of the upgraded margin assumptions may need to be revisited by March-end 2021. Hence, we believe that aggregate returns for Nifty may remain muted. We anticipate a 12-month fair value for Nifty around 11,700-12,600.”
With clarity over the US elections, economic recovery in India, and the vaccine development close to the peak, most participants believe that the markets would witness a correction due to its peak valuations and witness profit taking in the first half of Samvat 2077. G Chokkalingam, chief investment officer, Equinomics Research and Advisory, said, “The market has discounted almost all major positive developments like announcement of successful vaccine, US elections outcome, and moderation in number of Covid cases and proportionate improvements in India’s economic parameters. However, market valuations are ahead of corporate earning potential. Hence we expect a 5% to 10% correction in the markets. It could happen in January when Joe Biden takes over and tries passing the tax laws in the Senate.”
With the development of a vaccine just around the corner and improving economic outlook, sectors which are economy facing are poised to do better in the coming year. Rusmik Oza, executive vice-president, head of fundamental research, Kotak Securities, said, “As we advance towards getting the vaccine and economy gets back on track, we can expect the economy-driven sectors to outperform the defensives in Samvat 2077. Banks, NBFCs, automobiles, oil and gas, telecom, utilities, capital goods, cement and metals could come into focus in Samvat 2077. The potential upside in most of these sectors based on our one year price targets ranges between 20% and 39%.”
In the year that went by, markets recovered mainly because of a number of measures taken by central banks across the globe including the US Federal Reserve, European Central Bank, Bank of Japan, among others, to boost liquidity in their respective economies. Lately, clarity around the US elections with Joe Biden becoming the president-elect and developments around the Covid vaccine has helped in triggering the strong rally that the markets are witnessing. On the domestic front, improving economic outlook is also helping keep the investor sentiment upbeat. Nomura in its report said, “The Nomura India Business Resumption Index (NIBRI) picked up to another post-lockdown high of 85.8 for the week ending November 8 from 84.7 in the previous week. The improvement was led by a sharp pick-up in power demand, which rose by 7.5% week-on-week. Mobility data continued to improve, although the pickup in retail and recreation mobility was more modest and the Apple driving index plateaued from last week’s levels. The continued improvement in NIBRI reflects the moderation in India’s pandemic curve, ongoing lockdown relaxations and festive demand.”