Samvat 2080: ‘Indian economy poised for investment in equity, bonds and gold’

fiscal year 2024
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Samvat 2079 belonged to mid and smallcap stocks. The performance of the Nifty Midcap100 and NiftySmallcap100 index has been strong at 32% & 37%, respectively, led by a revamp in retail inflow in the latter half of the Samvat. The retail flow was from both the direct category and through MF. Meanwhile, large-cap stocks delivered a steady positive return, the Nifty100 index is 8%.

Going ahead, we expect large caps to perform better. Firstly, because the valuation scenario for India has become mixed, where midcaps exhibit higher valuations, small caps comparatively moderate but at the mid-range, and large caps trading aligned with the long-term average and the trend suggests a positive trajectory.

Secondly, of notable significance, large caps earnings growth in H1 has been robust, with high double-digit growth of 30 to 35%, based on the Q2 results announced till date. Despite this impressive earnings performance, the stock performance of India’s large-cap index, exemplified by the Nifty100, remains in the low double digits. Foreseeing a narrowing in the peer performance between mid to large caps over the next six months, we posit that large caps are positioned for superior performance. This expectation is also underpinned by resilience in overcoming the ongoing global economic challenges.

The principal insight from 2079 underscores the outperformance of Midcaps beyond initial expectations. Broad market has yield positive returns, but the year was characterized by inherent volatility, a perennial aspect of equity. Consequently, a continual reassessment of stocks, economic conditions, industry dynamics, and geopolitical factors, inclusive of qualitative aspects such as behavioural research, was imperative to evaluate portfolio. And thirdly, a proactive approach was needed to withdraw & churn funds, whether in profit or loss, across stocks, industries, and assets. This dynamic strategy had to be done by assessing key indicators like bond yield, money supply, inflation, and valuation suggesting a shift in risk.

For 2080 Samvat, we feel that India is in a good position to invest in multiple assets like Equity, Bonds, Gold, and Cash. The country is in a safe zone and can generate a decent return in each category; hence diversification and risk reduction should be utilised. The Indian economy is forecast to grow based on reform and inbuild domestic demand. Valuation is neither expensive nor cheap. So, we need to be stock and sector specific in equities. And Debt is also generating a decent yield of minimum 7% for sovereign to 11.25% A rating bond papers. Gold also has a positive view due to INR depreciation, a slowdown in the global economy, stable demand in India, and high geopolitical tension, gold has contra relationship with risk. An average risk averse investor can invest 40% in equity, 40% in Debt and 20% in Gold.

Key global factors to be watched in 2080 Samvat are the interest rate cycle and geopolitical tension. Our understanding is that bond yields are expected to stay in the ongoing high ranges during 2023-24, with a marginal negative slope due to a drop in inflation. This is negative for equity but positive for Debt in terms of regular income and upside in NAV. But economic growth is forecast to slowdown and constant hitches are expected in geopolitical tension, though both the Ukraine and Israel wars are showcasing improvements in the situation. However, a leeway in the trend of crude prices is likely, which should be positive for India. Thirdly, central election, historical trends indicate that elections in both India and the US typically trigger short-term knee-jerk reactions or consolidation. This is often attributed to a slowdown in decision-making, government spending, and the transition of leadership. While a change in leadership in the US is not anticipated to significantly impact the global market, but in India, a change could potentially exert a profound influence on the ongoing reformist rally, a scenario that is not currently forecasted.

We have a target of 21,000 for Nifty50 for the next year, Dec 2024, which translate to 70,000 for Sensex, indicating that we can expect a broad positive return of around 8% from here on. Our focus in 2080 Samvat will be on large cap with a focus on domestic demand like consumption, manufacturing, infra and energy, which can provide a better return compared to a broad market. Additionally, we recommend adopting an accumulation strategy for export-oriented sectors, including IT, Pharma, and Chemical, for long-term investors.

First published in Mint


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