Samvat 2076 – A year of resurgence

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Samvat 2075 Review

Samvat 2075 has been a volatile year owing to a number of domestic and global events. The global economic slowdown, US-China trade war and geopolitical tensions capped the upside for equity markets globally. This led investors to shy away from equity and move to a safer asset class–Gold. Back at home, sharp slowdown in the overall economy, NBFC crisis, stress in the banking sector led to underperformance of Indian markets. This led to lower GDP estimates for FY20 and earnings downgrades for India Inc.

The above factors led the re-elected BJP government and the central bank to announce measures to get growth back on track. The central bank has cut rates multiple times in 2019 following their global counterparts. However, the transmission has been limited till date. Further, the government announced a stimulus measures with the biggest being the corporate tax cut from 30% to 22%. This move would definitely prove to be a game-changer as reduced tax rate not only can improve profitability but it makes Indian companies compete globally. In terms of returns, the Nifty index yielded around 10.8% returns despite such negative sentiments and consistent FII outflow.

Outlook for Samvat 2076

Post two years of sluggish performance, especially from the broader markets, we expect a much-improved performance from Indian markets in Samvat 2076. The government’s constant efforts to lower lending rates, reform announcements are likely to yield good results over the next one year. Further, we expect the consumption to pick up meaningfully due to low base effect, normal monsoons, improved consumer sentiments and lower interest rates.

We also believe that the earnings down cycle are done and dusted and it would start to surprise on the upside as the worse seems to be priced in. The FIIs also have somewhat made a re-entry into the Indian markets. We expect the flows to pick up meaningfully as soon as the earning picks up. However, the crucial factor to watch out would be, how the government finances its deficit (especially after the tax cut). Any sharp increase in fiscal deficit target would be detrimental for the markets and economy. Nonetheless, we believe the government can mitigate the problem by speeding up and increasing its disinvestment targets.

On the global front, we believe that the concern over global economic slowdown is largely overplayed (as clear by sharp fall in yields) and with elections next year; it is unlikely that the growth would side sharply lower. Therefore, in the above context, we expect Indian markets would witness a meaningful revival in Samvat 2076 and have a target of 13,000 on the Nifty. Further, the midcaps and smallcaps which have struggled in the last two years would also see recovery. However, we do not expect broad-based rally in mid-cap and small caps and would advise sticking to companies with strong corporate governance and sound fundamentals.

Below we have mentioned certain sectors that we believe would outperform in the next one year.

Overweight Sectors – Autos, PSUs, Metals and Banking
Equal-weight Sectors – IT, FMCG, Consumer Durables
Dark Horse – Real Estate, Cement, Healthcare and Capital Goods

Do leave a comment below and tell us what you think.

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