With the economy reopening now and firing on all cylinders, the next Samvat offers an optimistic picture of India. It does suggest a further rally in equity markets, with an ETMarkets.com poll predicting up to 20 per cent potential upside for key indices in Samvat 2078.
But no return comes without risks. Dalal Street analysts have many in mind as they eye big gains in the next Samvat.
As old wisdom says, if it is known, it’s no longer a risk and the market factors it. But Vinit Bolinjkar, Head of Research at Ventura Securities, still sees some jitters due to tapering.
If the recent sharp foreign outflows are any cue, tapering worries could hurt equities, at least in the initial part of the year. FPIs pulled out Rs 13,550 crore worth of equities in October, NSDL data suggests. “Also, the market can see a sudden downfall if the 3rd wave comes, although the probability is meagre,” Bolinjkar said.
Deepak Jasani of HDFC Securities said commodity price inflation, supply chain issues, a reversal of monetary stimulus, increase in the interest rates across the globe, damage to the asset quality of lenders and slow job creation are some risks they see at this point. “Apart from this, if corporations are not able to show a bounce in earnings by March quarter, the Nifty earnings estimates may come under pressure, impacting the valuation of the market,” Jasani said.
Rising crude oil prices and inflation as well as supply-side pressure could reverse the interest rate cycle. It can also eat into earnings of many companies with less pricing power.
The markets have so far been largely supported by gushing liquidity. Earlier-than-expected tightening of monetary policy can pose a key risk to this upbeat mood, said Yesha Shah of Samco Securities. “Another brunt could arise from prolonged inflationary pressure, further hardening of commodity prices and inability of India Inc to pass on the increasing input costs to the end user. Needless to say, possible severe and extended waves of Covid-19 can also dampen investor sentiments.”
While the recent RBI projection has suggested moderation in inflation in the coming months, Jyoti Roy of Angel One said further increase in energy prices during the winter season, due to continued supply chain issues, could push inflation higher. This would force the US Federal Reserve to tighten liquidity quicker than expected.” Such a move would lead to outflows from emerging markets, including India, and cause volatility.
Gaurav Garg, Head of Research at CapitaVia Global Research, said the risk of the new Delta variant of coronavirus is a possible threat to the economy. If that unfolds, it may have an impact on the economy. “The rising bond yields may pose a threat to the markets as it will hamper liquidity. The higher valuations of the stocks may also lead to correction,” he added.
For Kotak’s Srikant Chouhan, crude oil prices, a depreciating rupee, the resurgence of Covid and rich valuations are the key risks. Vinod Nair, Head of Research at Geojit Financial Services, said a reduction in inflows from foreign institutional and retail investors, high inflation and high valuations are the key risks for the market. YES Securities also said inflation, interest rate hikes by global central banks and a resurgence of the pandemic could hurt market prospects.
“We believe the biggest risk can be earnings downgrade, interest rate hike at a faster rate by the US Fed and/or RBI and higher inflation,” said Ajit Mishra, VP of Research at Religare Broking.
Amnish Aggarwal of Prabhudas Lilladher said the third Covid wave, if at all, and its impact on growth; gradual tightening of interest rates by global central banks and sustained uptick in commodity prices, led by crude oil prices, are the biggest risk in the next Samvat. “However, the long-term structural story remains intact and volatility due to these factors should be used as an entry point in the markets,” he added.
Binod Modi, Head Strategy at Reliance Securities, said investors should also keep an eye on if there is a slowdown in the government’s capex in FY23.
Shiv Chanani of Elara Securities India said the longer-than-expected supply-side constraints could also be a drag on the market.
