MARKETS IN SAMVAT 2073
After the note ban blues, Nifty staged a smart recovery gaining 18 per cent, while mid and small-caps outperformed large-caps
Mutual funds drive markets to lifetime highs Samvat 2073 sees record IPO fundraising An eventful year for gold
The benchmark Nifty ended flat on Wednesday, the last trading day of Samvat 2073. However, the 50-share blue chip index gained more than 18 per cent during the Hindu calendar year. This was the market’s best performance in three years. During Samvat 2070 (year 2013-14), when the Narendra Modi government swept the General Elections, the index had gained 27 per cent.
The just- concluded Samvat had begun on a volatile note with the markets coming off close to 10 per cent following the government’s decision to ban high- denomination currency notes. Uncertainty created by Donald Trump’s surprise victory in the US Presidential Elections had further weighed on the performance of the Indian market during NovemberDecember period. However, the uncertainty was short-lived with risk appetite returning among global investors on optimism that Trump would announce cuts in corporate tax and boost infrastructure spending.
Stability on the geopolitical front and benign stance by global central banks spurred a rally in the global equity markets, including India. Shrugging off the gloom created by demonetisation, foreign institutional investors (FIIs) pumped in ~45,000 crore in January and February, lifting the benchmark Nifty 15 per cent from a low of 7,908 touched on December 26.
Since then, with the exception of minor blips, the Indian market has only looked upwards with the Nifty breaching the 10,000-point mark on July 26 for the first time. The 30-share Sensex index scaled 30,000 points on April 26 and then went on to climb 32,000 by end-July.
A unique feature of this rally has been low volatility. The India VIX index, a gauge of market volatility, has averaged only 13 in Samvat 2073. Such a low reading indicates that participants don’t see gyrations in stock prices. Interestingly, the market has seen only a handful of corrections of more than one per cent in the past nine months despite the recent sell-off from overseas investors.
The huge FII buying seen during January-February subsided over the next few months and since August they turned into huge net-sellers. Since August, FIIs have pulled out ~26,000 crore (over $4 billion) from the cash market. However, this failed to make much of a dent on the Indian markets thanks to aggressive buying by domestic mutual funds (MFs).
The highlight of Samvat 2073 has been the consistently strong buying by home-grown MFs. During the year, they pumped-in a massive ~1.25 lakh crore into domestic equities. Their buying was more pronounced when FIIs pulled out and markets went to a slight correction phase. This insulated the market from falling sharply. For instance, in the past three months, MFs have poured in more than ~40,000 crore as markets turned weak due to the FII sell-off. Impressive inflows into equity schemes by retail investors have given mutual funds the firepower for such huge buying. With low interest rates in fixed income instruments, retail investors have preferred to invest into the equity market via mutual funds.
While retail investors have been able to ride the equity market, concerns remain if the momentum is sustainable as corporate earnings are yet to catch up. For the last three fiscal years, Nifty earnings remained flat. The consensus estimates for Nifty earnings growth for this fiscal is 18 per cent, however, to achieve the target earnings will have to accelerate from here.
Most sectoral indices have ended Samvat 2073 with gains with the exception of the healthcare index. Pharma stocks have been reeling under pressure due to US regulatory uncertainty. Technology stocks too have been lagging the market due to slowing growth and US regulatory pressure. On the other hand, stocks from metals, commodities and private sector financials sectors have outperformed the market.