‘Samvat 2074’ To Deliver ‘Somewhat’ More
When the bears had almost taken over the game, bulls literally bull-dozed their way into the reckoning, so much so that the markets yet again hit all-time high levels. Despite subdued domestic economic outlook and war-like situation between the US and North Korea, Indian markets managed to sustain at peak levels in line with other major global bourses. The reason being better than expected macroeconomic numbers that depicted recovery from demonetisation hustles and clarity post-GST implementation. The latest upshot was IIP data, posting a record 4.3% in August 2017 as against 4% in August 2016 amid restocking of manufactured goods. Earlier, auto sales and core sector numbers followed by manufacturing and services PMI had already indicated revival from contraction. The icing on the cake was declining WPI to 2.6%, while steady CPI at 3.28% in September buoyed the sentiments ahead of the next RBI policy, which has left room for a rate cut. Currently, markets are in the midst of expected volatility triggered by Q2FY18 earnings reports.
When compared to the other asset classes, be it realty, bullion or FDs, nearly none has fetched returns more than the prevailing inflation rate. It was only equities that had outsmarted inflation and kept investors in good mood. Overall, the yearly scenario was exuberant for the Indian stock markets, where the broader markets outperformed the benchmark indices. Indian markets were dampened but not distracted with the two major events of demonetisation and GST implementation. The benchmarks have seen recovery since March 2016 itself, hitting sharp upside rallies, with small correctives in-between. The Mid-cap index too has become very big and gradually approaching the 2008 levels, with many stocks already crossing their prior all-time high levels. Small-cap index, the outperformer of the year, still carries a potential to almost double from here. Thereby, the talk of premium valuations and bull bubble might be just a babble, as the fall could be treated as mere profit-booking and not a downtrend. Moreover, we have seen FIIs selling off recently in the midst of geopolitical tensions and more attractive options offered by other bourses, yet the net investments in equities by FIIs in 2017 has surged 49%, while that of DIIs have almost doubled (90%) as compared to the last year. The second-half of FY18 may bring in some more cheer with bounce back visible in the corporate earnings. Markets have somehow digested the government’s radical reforms, which may prove to be positive over the long run. The biggest challenge would be cleaning the NPAs out of the banking system to improve overall efficiency. The upcoming budget, followed by the elections in 2019, would decide the fate of the markets in FY19. The markets are at peaks, but the marketcap-to-GDP ratio sits around the long-term average. Therefore, investors with a long term view can stay invested in stocks having potential to climb.