After weathering a choppy year that saw key indices collapsing from their record highs, investors are set for more testing times in Samvat 2075.
Market mavens feel factors such as the current discord between the Reserve Bank of India (RBI) and the government, liquidity woes of NBFCs and the upcoming elections could lead to volatility, at least during the first half.
This comes after a modest Samvat 2074 that has seen the Sensex (as of November 2) clocking gains of over seven per cent and the broader Nifty rising over three per cent.
Samvat 2074 began with a cautious outlook, but equities then shrugged off concerns of being expensive to touch record highs.
However, the party was spoiled by a mix of global and domestic factors that included rising crude oil prices and the depreciating rupee.
A trade war between US and China, rate hikes by the US Federal Reserve and selling by foreign portfolio investors made matters worse.
There were adverse local developments, too, such as the crisis at IL&FS which impacted credit markets leading to NBFCs facing a funding squeeze. To make matters worse, the spat between the Centre and the central bank came out in the open.
As of November 2, the Sensex has fallen more than 10 per cent from its peak of 38989.65 on August 29.
There has been some good news recently with crude oil prices falling below the $73-per-barrel-mark and the rupee gaining to cross the 73-level, apart from the easing of worries on the US-China front. The key question remains whether the indices will catch up with their peak in the New Year. Experts are of the view that in the immediate term, the markets will be watching how the relations between the RBI and Centre unfold and whether liquidity woes for NBFCs recede.
“The first half of Samvat 2075 will be volatile,” Siddharth Sedani, vice-president for equity advisory at Anand Rathi Shares and Stock Brokers told The Telegraph. Sedani pointed out the tiff between the US and China apart from elections in five states followed by the general polls in 2019 could impact the markets. He, however, added that though equity prices may react in a knee-jerk manner to general election results, polls do not set the direction for the markets.
“It is earnings which run the market. Samvat 2075 will be fruitful. While the first half will be volatile, the second half should be stable’’, he added.
Sedani feels auto ancillary, private sector banks, specialty chemicals and consumption (sectors) could be the theme of the next one year. His brokerage is recommending six stocks including Asian Paints, HDFC Bank, L&T Technology Services, JSW Steel, Sundaram Fasteners and Indraprastha Gas.
Amnish Aggarwal head — research at Prabhudas Lilladher is also of the view that markets could remain volatile.
“We are entering election season as the state and central elections are round the corner. State election results in December and the likely code of conduct for the Lok Sabha elections post middle of February have left limited options for the Government of India to undertake major policy decisions.
“While markets are factoring in the loss of elections in Rajasthan, loss of Madhya Pradesh or Chhattisgarh can significantly increase uncertainty ahead of 2019 elections,” he pointed out.
The brokerage is positive on domestic consumption, IT and select private sector banks and has a cautious view on NBFCs, pharmaceuticals, auto and oil marketing companies.