Equity

Resilience and Rise of key Indian Indices

by DeepakGupta

Since our last article on Indian equity markets on 10’th April’21 ,wherein we mentioned about the imminent second wave of Covid 19 and its impacts, it has been few tough weeks. After a tight consolidation in a very strict range, its time for resilience and rise of key Indian Indices.

We suggested that market will be in a range of 14250-15000 and let’s wait to see the direction taken by market amidst this health mayhem.

Well, as our title suggests, it rose and was resilient.

It not only took strong support at lower levels but also tested upper end of the range at 15000. It has been 3 weeks of consolidation and the direction of market now is clearly hinting an upside from current levels.

There was a correction on Friday from highs as we approached the weekend but that should now be seen as a correction of an uptrend.

If we look at the mother market and major US indices:

  1. Dow Jones – In the month of April’21, it touched a high of 34k from 33k in March’21.
  2. S&P 500 Index – In the same period, it touched a high of 4200 from 4000.
  3. Nasdaq – It touched an all-time high of ~ 14200 from ~ 13400.
There is a rise in US stock indices.

They all are making new highs even when US is at top of the list when it comes to number of people who have tested Covid 19 positive till date.

I am comparing our performance and mentioning US indices because our nation and Index companies are closely related to it.

Our Key sectors:

  1. IT, Information technology – It drives a major revenue from US markets.
  2. Pharma – A significant portion of their sales are from America and they also tend to gain in revenue from India amidst Covid.
  3. Metals – They are a global play and touching a new high with every passing day. This is on the back of global economic recovery and supply constraints.
  4. Financial Institutions – These are cyclicals and will benefit from huge liquidity gush from foreign countries and favorable credit cycle.

Hence the majority of Nifty 50 earnings are resilient and although there will be some earnings revision in short term but in the medium to long term, they will gain.

We are in a structural bull market as is sensed from key indicators like:

  1. Accommodative stance by central banks across the world.
  2. Low interest rates.
  3. Inflationary environment, etc.

 Hence, the upward momentum will continue post this consolidation.

I would also like to highlight that there is a hit which is seen in the informal sector because of Covid and their incomes have been impacted.

If we look at the income of:

  1. Small schools and retailers.
  2. Restaurants.
  3. Wedding and event industry.
  4. Small vendors.
  5. Consumer discretionary like Malls and cinemas, etc.

is affected but as we tend to grow as a nation and an economy, they will bounce back.

Here is India’s GDP growth in last few years ,

  • India GDP growth rate for 2019 was 4.18%, a 1.94% decline from 2018.
  • India GDP growth rate for 2018 was 6.12%, a 0.92% decline from 2017.
  • India GDP growth rate for 2017 was 7.04%, a 1.21% decline from 2016.
  • India GDP growth rate for 2016 was 8.26%, a 0.26% increase from 2015.
Indian economy and its future growth.

 It is declining and can be attributed to an extent to events like:

  1. Demonetization in 2016.
  2. Insolvency and bankruptcy code, 2016.
  3. RERA implementation in 2017, etc.

However, with positive stance and steps taken by government in last so many years and major ones like,

  1. Corporate Tax cut in 2019.
  2. PLI and make in India scheme in 2020
  3. Budget session in 2021 indicating stake sale in PSU’s, big infrastructure and investment push, etc.

will drive and has the potential of making India return to its earlier growth percentage of 8-9%.

This will be on the back of private capex and investment cycle.

Once that happens, we will see many of the professionals, citizens and everyone associated with our country gain a lot.

Markets are already sensing that and have started to price it in. It is reflected in the resilience of our market that inspite of such a health crisis in our country, we are just 4-5% shy from all-time highs.

Hence, we are very bullish in long term. In medium term, we suggest a target of closer to 16000-16500 on Nifty 50.