While the rally came under pressure from a gruesome second wave of the pandemic and concerns over reversal of easy money policies of global central banks, equities managed to climb the wall of worry to deliver strong returns.
In the next Samvat, analysts expect the Indian stock markets to continue giving up to 20 per cent returns, according to a poll of 14 brokerages conducted by ETMarkets.com poll. That said, three factors are likely to contribute the most to the continuation of the bull market, according to the analysts polled.
Earnings growth to sustain
Despite the underwhelming performance from India Inc so far in the September quarter earnings season, there is still reasonable optimism among analysts that earnings growth momentum will sustain in Samvat 2078.
“The current rally in the markets has been possible mostly due to liquidity and the positive quarterly results of India Inc,” said Gaurav Garg, head of research at CapitalVia Research.
The optimism for earnings growth stems from the fact that the pandemic has accelerated the shift of market share in various sectors from the unorganised to the organised companies. Further, with India’s economy still recovering and demand in the economy still muted, there are still enough levers for growth of corporate earnings after the profit-to-GDP ratio hit decadal lows last year.
Acceleration in (private) capex
One such lever is the expectation that capital expenditure cycle, especially, private capex will pick up speed in the coming years. One of the major themes that Dalal Street mavericks have talked up in their comparison of the current bull market to that of 2003-07 is the seemingly similar signs of early capex cycle revival. “…likely multi-year investment cycle led by corporate and household capital expenditure would keep the story of Indian markets intact for the next two years,” said Shrikant Chouhan, head of equity retail research at Kotak Securities.
The current financial year has already shown that some pockets of the private sector are willing to invest in capacity expansion, given the strong rebound in demand conditions. This phenomenon has been seen in intermediates sectors such as chemicals, steel and cement. With corporate balance sheets in their best shape in years, there is hope that this time, the capex cycle won’t give any false dawns.
Reform momentum
To its credit, the government has used the flux in the economy caused by the Covid-19 pandemic to accelerate several reforms that analysts believe will provide further impetus to economic growth. The production-linked incentive schemes, agriculture reforms, infrastructure projects and a renewed push for divestment have been the highlights of the government’s initiatives over the past 18 months. In the new Samvat, analysts expect execution on these reforms as well as further push to reform other aspects of the economy.
“With Air India’s privatisation successfully undertaken, expectations of speedy disinvestment and privatisation of other PSUs are also likely to aid growth,” said Yesha Shah, head of equity research at Samco Securities.
