Samvat 2079 recap: Mid, small-cap stocks sparkle; return of strong majority govt to significantly re-rate markets

Samvat 2079 recap, Samvat 2080 outlook, stock market today: Despite a set of worries lingering on the global front, Indian equities came out strong and delivered a good show since the last Samvat. The Nifty zoomed a decent 9 per cent. Nevertheless, the star performers have been small and midcap indexes, with gains of 28 per cent and 26 per cent, respectively, as per the HDFC Securities report.

Gains across most months of Samvat 2079
 
The gains have been seen in most months during Samvat 2079 amid healthy FPI and domestic institutional flows.

On the whole, while Indian equities emerged resilient and insulated from global financial and geopolitical distress, the pressure was seen in the early months of 2023 as weak December earnings, the Adani-Hindenburg saga, and COVID resurgence fears weighed. But again, as bond yields are hardening in the US, pressure is seen mounting owing to consistent FII outflows. Foreign institutional investors have been net-offloading their funds from Indian equities.

Important pointers worth investors' attention

Several global financial firms are upgrading the country's GDP forecast. The recent upgrade has been initiated by UBS, which forecasts 6.3 per cent growth for FY24. The brokerage's chief India economist expects the country to gain momentum from increasing household spending given the festivities, buoyant credit growth, and reallocation of government spending towards pro-rural and pro-social schemes ahead of a tight election calendar.

Importantly, while India’s growth estimates have been upped, growth forecasts for other economies have been moved lower.

JP Morgan, with effect from June 28, 2024, will add Indian G-securities to its Government Bond Index-Emerging Markets suite with a maximum index weight of 10 per cent. This inclusion is likely to attract between US$20 and $30 billion of net foreign purchases into India’s domestic debt market. 

Pain points that cannot be ignored and will weigh going ahead

Higher inflation, despite global central banks’ measures, continues to be sticky, resulting in high-interest rates. And if the situation persists, a global economic slowdown will most likely happen. Amid the ongoing Ukraine-Russia conflict, the recent Israel-Hamas violence is also impacting investors’ risk appetite. “Rising bond yields are impacting equity market valuations and corporate profitability,” noted the HDFC Securities report.

Outlook for Samvat 2029

Sharekhan by BNP Paribas expects corporate earnings to grow at a CAGR of 15 per cent for the next two years, and in the same period, it sees over 20 per cent growth in the BSE 200 over the same period.

HDFC Securities is of the view that to sail amid the global uncertainties smoothly, investors as well as companies need to adapt to the changing economic conditions and market dynamics.

“Investors should view the current market weaknesses as valuable buying opportunities for constructing a top-tier portfolio aimed at riding the multi-year economic upcycle in India and use the opportunity for wealth creation over the next few years,” added Sharekhan in its Diwali Picks 2023 report.

YES Securities’ Jt. MD & CEO Anshul Arzare, on his outlook in the near term, said that while higher rates in developed economies have caused India to see a dip in inflows in the last few months, the situation is likely to reverse post-Diwali.

He noted that the growth prospects in developed economies are challenging, which will encourage renewed inflows into emerging markets like India.

“India is likely to remain one of the few credible growth stories in the second half of this financial year, given strong credit growth and robust corporate earnings,” Arzare added.