Samvat 2077 started off with a robust bull run led by outperformance in the broader market.
While benchmark Nifty has delivered a stellar return of more than 40 percent since last Diwali till October 24, mid and small cap indices, too, have reported excellent performance and are up 66 percent and 79 percent respectively for the same period.
The broader market has outperformed the large cap universe in the last one year after a muted performance seen in the calendar year 2018 and 2019.
Samvat 2077 returns were broad-based primarily on account of better participation witnessed across stock categories as well as sectors which was relatively narrow in the pre-pandemic years. Furthermore, the pandemic year has translated into superior profitability for the Indian corporate which can be manifested in Nifty EPS’ encouraging growth of 15 percent in FY21, led by cost rationalization practices and pent-up demand.
The Indian economy has recovered sharply as COVID 2.0 gradually waned with a pick-up in the vaccination drive. With new hope and confidence in the economic recovery, benchmark Nifty has advanced quite some distance and touched an all-time high of 18477 on October 18, which stands 49 percent higher than the pre-pandemic high.
COVID-19 advent brought upon structural changes in everything from markets to the global economy at large. India exhibits one of the biggest demographics in the world with a highly dense population. And though arresting COVID-19 spread within this highly dense population was critically challenging, the government managed to curb further spread of the second wave in May’21 by imposing multiple localized and regional lockdowns.
Vaccination drive has since picked up significantly and administrating 100 crore vaccination doses in the first 270 days earmarked a remarkable milestone for the country. The rapid and deep reach of vaccination across the country has invigorated the hope and confidence that the country will witness a faster economic recovery to the pre-pandemic levels. Moreover, COVID-19 imposed challenges have also brought new trends in the market such as making work-from-home culture a new normal while strengthening the balance sheet of many Indian corporates by forcing them to undertake proactive cost rationalization measures.
Samvat 2078 now looks much brighter and more promising. This Diwali has brought festive cheers to many businesses after prolonged standstill operations and/or underutilized capacities owing to lockdown-led restrictions. It seems more probable that growth will revive sooner with higher economic activities as can be inferred from the high-frequency indicators trends.
Samvat 2078 will be a year of balance sheet leverage, led by significant improvement in corporate profitability. Cumulative and rolling net profit of NSE 500 universe for the last four quarters has touched an all-time high with loss-making sectors turning positive and significantly contributing to the net profitability. Moreover, ROE for the broader market is improving after a muted performance for several years.
Overall, the Indian market has entered into an earning’s up-cycle with an expectation of more than 20 percent growth in Nifty’s earnings in the next two years. With faster economic recovery on the cards, more cyclical sectors are likely to join the rally with the expectation of higher government spending moving forward.
The Indian banking system has coped well with the pandemic challenges and it is now flushed with liquidity. Interest rates are low, paving the way for a strong pick-up in lending activities in the forthcoming quarters. New home registrations are seeing encouraging traction across metros with housing loans surging in the overall banking system.
Themes for Samvat 2078:
Ø The Small and Mid Caps are picking up steam and balance sheet leveraging is likely to play out in 2022 with an improved outlook on return ratios and profitability.
Ø Housing and Banking will be major themes to watch out for in 2022 on account of their improved outlook and current lower interest rate regime.
Ø The infra sector is an emerging theme as the government augments its spending in this space moving forward.
Ø Digital and Cloud will continue to remain major long-term structural themes.
Ø The demand for Home improvement has bolstered and continues to be robust in 2022
Ø Travel & Tourism stands to be a more promising theme, which has further gained momentum post a pick-up in the vaccination drive.
