Diwali marks the beginning of the new Samvat (year based on lunar calendar of the ancient Hindu tradition), and the current one (Samvat 2068, which ends on November 13) has proved a turnaround year for Indian equity markets. The BSE benchmark index, the Sensex, gained nearly eight per cent during this period, as compared to a negative return of 17.7 per cent in Samvat 2067; the mid-cap index also moved up eight per cent.
While the global equity markets swayed between fears of Euro zone collapse and slowing growth in the past year, the Indian markets remained choppy. Macro-economic headwinds, a deteriorating rupee, policy logjam amid sticky inflation kept gains in check for much of the year.
What saved the day for most equity markets, including ours, was the gush of liquidity, albeit in phases. The announcement of a third round of quantitative easing in the US and the unlimited bond buying programme of the European Central Bank a few months earlier led to a liquidity-driven rally across asset classes, especially equities.
At home, the government’s intent of implementing key policy measures to boost the slowing economy added to overall positive sentiment. Experts say the markets would watch implementation of the already announced measures and this would be key to what foreign institutional investors (FIIs) do.
Samvat 2067 saw FIIs invest a net $18.3 billion (Rs 94,815 crore) in Indian equity space, data shows. Their net investments were $18.6 billion (Rs 96,650 crore) in 11 months of calendar year 2012.
Given the macros and the volatile markets, investors chose to play safe and their investment preferences were reflected in the performance of sectoral indices, with the BSE FMCG and healthcare indices (considered defensive and safe bets in a volatile market) surging 41 per cent and 27 per cent, respectively, during this period.
An analysis of the BSE 500 stocks shows Wockhardt (up 263 per cent), Strides Arcolab (up 120 per cent), Tata Global Beverages (up 92 per cent), Ipca Labs (up 75 per cent), Hindustan Unilever (up 55 per cent) and ITC (up 36 per cent) were some of the notable gainers from these two segments.
A revival in interest rate-sensitive stocks on hopes of a softer interest rate regime saw the banking index, the Bankex, gain 20 per cent; the BSE automobiles index moved up 15 per cent. The BSE metal index (down 11 per cent), oil & gas index and power index (down nine per cent each) were among the laggards.
Despite the Competition Commission of India’s report on cartelisation, cement stocks have gained ground. Shree Cement (up 134 per cent), Madras Cements (up 110 per cent), UltraTech Cement (up 79 per cent), Ambuja Cements (up 39 per cent) and ACC (up 22 per cent) were among the top gainers. News-based stocks also saw a lot of investor interest. United Spirits, United Breweries Holdings, Den Network, Zee Entertainment, Pantaloon Retail and Dish TV India moved up by 22–134 per cent.
Experts advise caution in stock picking. “The markets will start to track earnings growth now, which we expect in the region of 10–15 per cent for India Inc. We expect fund flows to be in the region of $10–15 billion next year. Given this backdrop, the Indian markets can surge around 15 per cent by next Diwali,” says Andrew Holland, CEO of Ambit Capital.
“I expect the Sensex to touch 24,000 levels by the next Samvat,” adds Deven Choksey of KR Choksey Securities.
Cautions G Chokkalingam, chief investment officer at Centrum Wealth Management, “Equity markets in the developed world are expected to be highly volatile, as we expect the US economy and Euro zone to continue to suffer from debt issues and economic slowdown for at least another year, if not for the next three years.”
Choksey likes IDFC, Bajaj Finserv, Tata Motors and Jain Irrigation. He expects select pharma companies such as Cipla, Glenmark and Ranbaxy to register growth of 25–30 per cent. Praj Industries, Sterlite Technologies and REC are some of his top picks among mid-caps.
Corroborates Dinesh Thakkar, chairman and managing director, Angel Broking, “I do believe the next leg of the rally is expected to be much stronger in mid-caps. Accordingly, I would also recommend sectors such as media, FMCG (fast moving consumer goods) and apparel.”
One can avoid investing in cement and metal stocks for at least another one to two quarters, according to Chokkalingam. Centrum believes mid-cap stocks such as JB Chemicals, Balmer Lawrie, Engineers India, NESCO or KCP Sugars can give a return of 30–50 per cent in a year. Ambit prefers the private banking space (YES Bank) as compared to the PSU lot. Bajaj Auto and Maruti Suzuki are Holland’s top picks in automobiles.