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

Going forward, we expect large caps to outperform. Firstly, because the valuation scenario for India has become mixed, with mid-caps showing higher valuations, small-caps moderate but at the mid-high range, and large-caps trading aligned with the long-term average and giving the a trend indicating a positive trajectory.

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Second, of significant importance is that large-cap earnings growth in H1 is strong, with high double-digit growth of 30 to 35%, based on Q2 results announced so far. Despite this impressive earnings performance, the performance of Indian stocks and large-cap index, represented by the Nifty100, remains in the low double digits. Expecting a narrowing of the performance of mid- and large-cap peers over the next six months, we believe that large-caps are positioned for better performance. This prospect is also underpinned by resilience to overcome the ongoing global economic challenges.

The key insight from 2079 shows Midcaps outperforming initial expectations. Broad market returns are positive, but the year was characterized by fundamental volatility, a perennial feature of equities. Therefore, it was necessary to constantly reassess stocks, economic conditions, industry dynamics, and geopolitical factors, including qualitative aspects such as behavioral research, in order to evaluate a portfolio. And thirdly, a proactive approach was needed to withdraw and mitigate funds, whether in profit or loss, across stocks, industries and assets. This dynamic strategy had to be done by evaluating key indicators such as bond yield, money supply, inflation, and valuation that suggest a change in risk.

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For Samvat 2080, we feel India is well positioned to invest in multiple assets like Equity, Bonds, Gold and Cash. The country is in a safe zone and can generate a reasonable result in all categories; therefore diversification and risk reduction should be used. India’s economy is forecast to grow based on reforms and building domestic demand. Valuation is neither expensive nor cheap. Therefore, we need to be stock and sector specific when it comes to equities. And Debt is also generating reasonable yield of minimum 7% for sovereign bond papers to 11.25% A. Gold also has a positive outlook due to INR depreciation, slowdown in global economy, stable demand in India, and high geopolitical tension, yes gold has an inverse relationship with risk. A moderate risk averse investor can invest 40% in equity, 40% in Debt and 20% in Gold.

The key global factors to watch in 2080 Samvat are the interest rate cycle and geopolitical tensions. Our understanding is that bond yields are expected to remain in sustained high ranges through 2023-24, with a marginally negative slope due to falling 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 slow and geopolitical tensions are expected to continue to peak, although both the Ukrainian and Israeli wars are showing improvements in the situation. However, the crude price trend is likely to ease, which should be positive for India. Third, central elections, historical trends show that elections in both India and the United States 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. Although a change in leadership in the United States is not expected to have a significant impact on the global market, but in India, a change could have a profound impact on the ongoing reform crowd, a situation that is not predicted at the moment.

We have a target of 21,000 for Nifty50 for next year, December 2024, which translates to 70,000 for Sensex, indicating that we can expect a broad positive return of around 8% from now. In 2080 Samvat will focus on large cap and focus on domestic demand like consumer, manufacturing, infrared and energy, which can provide better return compared to broad market. In addition, we recommend adopting an accumulation strategy for export-oriented sectors, including IT, Pharmaceuticals and Chemicals, for long-term investors.

Author Vinod Nair is Head of Research at Geojit Financial Services.

Disclaimer: The above opinions and recommendations are the opinions and recommendations of individual analysts or brokerage firms, and not the views of Mint. We encourage investors to check with certified experts before making any investment decision.

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Updated: 12 November 2023, 10:05 AM IST

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