Broader markets are the new barometer of India’s economy


The broad market is expected to maintain its buoyancy especially when it comes to growth stocks and sectors, beneficiaries from unlocking.

When we investigate the performance of main indices like Nifty50 and BSE Sensex, they are not reflecting the correct and delightful run of the Indian stock market. During the week, after opening at a record high, the domestic market slipped into the negative zone taking cues from other Emerging Markets due to the spike in Covid cases across Asia. The market got volatile even ahead and after the Finance Minister announcement of Covid relief package, though it was and likely to be good for the economy, especially for stressed sectors, micro, small and medium enterprises (MSMEs), microfinance institutions (MFI), and rural markets.

Though the spread of the delta variant remains a concern in the Asian market, the domestic market focused on the declining Covid cases and vaccination drive, lifting the mood of the broad market. A rising holistic economy from the ashes of the last 1-2 years is providing an edge to Mid and Small caps. The easy money policy is likely to stay at least in the short to medium term and the economy is furnished with a high fiscal policy.

Today, the retail and mutual funds inflows are so strong that it is absorbing the selling of FIIs, who have net sold Rs 20,000 crore equities in FY21 till date. This is also limiting the level of price correction in main indices. Originally, retail investors were triggered in April 2020 by attractive low prices, rise in risk-taking appetite given lack of substantial change in their personal income, fall in the cost of leverage and rise in free time. The benefit to the Indian market from rising retail investors will continue to help in the short to medium term as liquidity and sustenance of profits, their key weapons of strength will stay with them. This was noticed in global markets too and a lot will depend on the momentum of the global markets. Other than this, the valuation of Mid and Small caps, which broadly are trading at the same levels providing room to upside, any slowdown in global easy money policy will be the key watchlist for the broad market.

Indian market has gained well in the first half of CY21 in the context of a friendly global market. And lately, the Indian market is caught in action in anticipation of benefits from unlocking. Unlocking will add more traction in the coming quarters. We feel that main indices may not suffice as the true barometer to reflect the actual and forecast performance in the short-term. This will be because of two key factors, firstly the high fluctuation in forecasting, as the economy is dealing with pandemic which has led to constant under evaluation of future gains like corporate earnings growth. And secondly, many parts of the future gains are already factored in the pricing of blue-chips trading at premium valuations, making non-heavyweights better propositions.

The broad market is expected to maintain its buoyancy especially when it comes to growth stocks and sectors, beneficiaries from unlocking.

We have a target of 16,165 for Nifty50 in December 2021, showcasing an upside of only about around 2.8 percent from the current level, with a margin-of-error is +/- 5 percent. This may not reflect the true barometer of actual and forecast performance in the short term. The broad market could be a better barometer, like sectors-wise and mid and small caps.

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