Samvat 2076: Indices may remain under bear grip
The Sensex and Nifty have posted gains of 11 per cent and 10 per cent, respectively, during Samvat 2075 — t he Hindu calendar year. However, analysts have ruled out a runway rally in Samvat 2076, on the back of domestic and global headwinds. They say these factors could keep indices volatile throughout the year.
On the domestic front, health of the economy, fiscal and current deficits, flows — both from foreign and domestic investors — into equities as an asset class, interest rates, liquidity issues, policy initiatives by the government, and modest growth in corporate earnings, are factors likely to impact sentiment. Globally, the trade war, monetary policy of major central banks, and oil prices are factors that will dictate market direction, the analysts add.
“Samvat 2076 will be a tale of two halves. Things should improve back home after March 2020 once policy measures announced by the government and the Reserve Bank of India (RBI) bear fruit. Sentiment will remain subdued till then. Global factors, especially the US- China trade war, monetary policy of global central banks, and geopolitical issues will also play an important role. Expect the Nifty to trade in the broad range of 10,500-13,000 over the next year,” said U R Bhat, managing director of Dalton Capital.
Madan Sabnavis, chief economist at CARE Ratings, shares a similar view with respect to a pick-up in key economic indicators. While various measures announced by the government will aid sentiment in terms of improving overall economic activity, he expects the impact to be spread over a period of time. “The near-term impact will be limited. Improvement may be visible only in the next financial year, and be contingent on a sustained pick-up in consumption demand, which, in turn, could stimulate investment,” says Sabnavis.
On their part, foreign portfolio investors (FPIS) with a net investment of ~69,792 crore ($10 billion), and domestic institutions that put in a net ~65,822 crore, continued to repose their faith in India and equities as an asset class during Samvat 2075.
“The corporation tax cut has changed the market level. While there is an argument for rerating — on growth, relative competitiveness, and cost of capital — the US’ experience with tax cuts, the economy and markets is more sobering. We believe it provides a risk appetite uptick for businesses — a pre-requisite for acceleration — but not enough to factor it in, yet. See a modest market upside over the next year (up 8 per cent),” believes Aditya Narian, head of research (institutional equities), Edelweiss.
Rate cut to the rescue?
Most experts see the RBI continuing with its accommodative stance. Nomura, for instance, expects a 15-basis-point (bp) cut in repo rate to 5 per cent in the next policy review in December. Indranil Sen Gupta, director and India economist at Bank of America Merrill Lynch, expects more policy response from the government to stimulate demand and an aggressive 25 bps cut.
“The government may cut income tax to stimulate demand if the on-going festive demand turns out really weak. Given that the corporation tax rate cut has already cost the exchequer 0.7 per cent of the GDP, the bar for an income tax rate cut remains very high,” he wrote in a recent report.