MARKETS IN SAMVAT 2076: Seeking quality in tough times

The kicker for the market as a whole could come through if the ongoing reforms, tax cuts, further fall in interest rates and likely pick-up in investment/consumption cycle boost GDP growth

Investors seem to have little to complain about Samvat 2075, as it ended with double-digit returns compared to a mid-single digit performance in the previous Hindu calendar year. However, the better show by leading benchmarks Sensex and Nifty masks the pain in sectoral indices, as well as in the small- and mid-cap companies, which registered their second straight year of negative returns. The Nifty Smallcap, for example, has shed 33 per cent over the last couple of years, including 10 per cent in the previous Samvat. In comparison, the Sensex and Nifty have generated positive returns in the range of 13-18 per cent. The preference for large-caps has come in the aftermath of the IL&FS crisis, a slowing economy, and demand woes. While value has emerged in some pockets, investors continue to seek refuge in safety and quality. The list of stocks mentioned here, therefore, is tilted towards those companies that exhibit earnings visibility, stability in cash flows and return ratios. The kicker for the market hereon, as a whole, could come through if the ongoing reforms, tax cuts, further fall in interest rates and a likely pick-up in investment/consumption cycle boost GDP growth. This could be a trigger for earnings growth as well as a market wide re-rating.