Indian markets record new highs in year 2017

Just two more trading sessions are left in 2017, and if we look at overall performance, this year has been extremely rewarding for both primary and secondary market.
 
Both benchmark indices, Sensex and Nifty, have touched new highs on multiple occasions during 2017, so much so that they outperformed various global markets.
 
On December 27, before ending on a negative bias, Sensex and Nifty touched a new high of 34,138-mark and 10,551-level respectively during the day.

 
With this blockbuster performance, Sensex has given 30.23% return on year-on-year (YoY), while Nifty 50 gained by 31.35% on yearly basis. A year ago, on the same day, the 30-scrip index was trading at 26,213 level and that of 50-scrip index stood at 8,032-mark.

If you are capital market lover, you must have noticed that Sensex and Nifty continued to touch new highs since the start of the month of November 2017.
 
Reasons behind such performance could be like government's bold structural reforms to curb black money, implementation of Goods and Services Tax (GST), banks recapitalisation, solving stressed assets of lenders, state elections in Gujarat and Himachal Pradesh along with positive foreign inflows.
 
The Sensex is trading at 18x-18.5x times, and has outrun global indices like Dow Jones, Nikkei, London's FTSE-JSE and even Germany's DAX.

 
Similar is the case of Nifty 50.
 
IIFL research on Nifty stated that mid-caps and small-caps are outperforming large-caps for the fourth consecutive years providing more than 40% return so far.

 
According to the research, almost 40% BSE500 stocks are up more than 50% this year. Barring pharma, all other sectors have delivered positive returns this year.
 
On Sensex, sector-wise consumer durables emerged as the top performer by giving a whopping 112.84% return on yearly basis, followed by realty which gained by 108.1%, telecom by 62.51%, consumer discretionary by 59.63%, metal by 56.21% and energy by 51.38%.
 

NBFC, auto and banking sector were also not far away as they have grown by 50.24%, 37.95% and 46.91% respectively on Sensex.
 
While on Nifty, realty took lead by surging over 113% on y-o-y basis, followed by financial services sector which rose by 47.55%, banking sector by 47%, media by 39.47% and FMCG by 36.73%.

It was only healthcare sector, which stood at single-digit growth on Sensex, and performed negatively on Nifty.
 
With secondary equity markets being extremely buoyant, it is not surprising that the primary capital markets are also buoyant.
 
If we talk about primary market, one needs to acknowledge the performance under initial public offerings (IPO).

 
A total of 36 companies from sectors like infrastructure, financial services, media, hospitals and transports entered into the IPO market with an issue of nearly Rs 67,141 crore.
 
Analysts at Motilal Oswal said, “It has been a spectacular year for the Indian IPO market, with equity issuances across categories increasing ~2.5x over the previous year.”
 
The contribution of new listings to Indian market cap reached to seven-year high of 3% in 2017. At present, Indian market cap to GDP ratio is at 85%, of which 2.6% is contributed by the new listings.
 
Not only this, even mutual fund industry added another milestone in 2017. Total asset managed by mutual funds reached to a fresh high of Rs 22.80 lakh crore in November month of this year – up 6.4% from Rs 21.4 lakh crore in the preceding month.

 
This represents a 38.1% increase on yoy basis in this industry. Of the total MF corpus, ~38% was held by income funds and ~32% by equity and ELSS funds.
 
Under equity mutual funds, average return of large cap funds, multi cap funds and mid & small cap funds in 2017 stand at 30%, 32% and 41% respectively.

In the trailing 12 months, the mutual fund industry also saw a net inflow of Rs 4.55 lakh crore. Out of the total net flow, Rs 1.35 lakh crore came into equity.
 
Going ahead, foreign inflows into Indian equities were one of the highest among large emerging markets.

 
From January 2017 – till date, foreign portfolio investors (FPI) or foreign institutional investors (FII) have overall invested Rs 198,833 crore – of which Rs 49,953 crore in equity and Rs 148,885 crore in debt market.
 
This is a commendable performance from overseas investors, as last year (2016) these investors had removed away Rs 23,079 crore. Therefore, India has outperformed most of the large equity markets in past one year.
 
Outlook for 2018
 
Ashutosh Datar analysts at IIFL says, "High frequency data in the last couple of months has improved, suggesting the economy is finally shrugging off the drags from demonetisation and GST. However, on the one hand, earnings expectation for FY19 is already the highest in recent years, on the other, market valuation is close to all-time high. Thus, 2018 promises to be very interesting year."
 
Sharekhan adds that earnings growth to pan out finally; Laggards to rise from ashes like - Revival of earnings growth in India and Underperforming sectors/pockets of stocks and certain companies to outperform indices.
 
Further, Sharekhan says, Sensex current PE ratio suggests that this market is clearly not cheap anymore, adding “Thus, the scope for further PE expansion is limited. More so, bond yields (risk premium) have also hardened and it clearly has an impact on PE multiples in equities.”
 
Sharekhan believes that equities are expected to still give healthy double-digit returns in 2018 on account of healthy revival in earnings growth coupled with continued inflows into equities. Though, it adds that foreign inflows tend to be unpredictable and erratic at times, domestic inflows are likely to remain healthy due to lack of better investment opportunities.
 
However, analysts at ICICI Securities say, "While most FMCG stocks are trading above their last 10 year average valuations, expected demand revival and stability in margins shall enable sustaining the high valuations."
 
"With so much of optimism around FMCG growth revival and operating at decadal high margins, amidst rich valuations of FMCG stocks, it’s worthwhile to wonder what can risk FMCG stock rally," they added.