After a stellar year that took stocks to record highs, Samvat 2081 started on a positive note, with stock indices finishing in the green. However, market veterans warned for the future: do not expect a repeat of Samvat 2080, preserve capital and limit your expectations.

The Nifty 50 and Sensex closed on a positive note in Friday’s special Diwali Muhurat trading session, up 0.4 per cent each at 24,304.35 and 79,724.12 points respectively. The two indices gained 24% and 22% respectively in Samvat 2080, the highest since Samvat 2077. During the year, the Nifty 50 hit record highs in 78 out of 242 trading sessions, according to data from Capitaline.

Experts said Samvat 2081 will be a stock-picking market, highlighting the importance of careful selection in an environment where return expectations are likely to be more moderate than in previous years.

Rahul Singh, chief investment officer of Tata Asset Management, said that going forward, “alpha generation will increasingly be driven by stock selection rather than sector selection.” He explained that the strength of macroeconomic indicators is currently offset by lowered profit forecasts. He says this could lead to a consolidation phase where thematic trends fade and a more bottom-up approach takes over.

Good stock in good sector

Gaurav Dua, senior vice president and head of capital markets strategy at Sharekhan by BNP Paribas, agrees that selecting the right stock, rather than the right sector, will be key. “Even though the multi-year outlook for the Indian economy and markets remains positive, Samvat 2081 may experience moderation in returns due to global uncertainties and slowing earnings growth domestically,” it warned.

Vetri Subramaniam, chief investment officer of UTI Asset Management Co., said: “The key point is that you have essentially borrowed future returns – that’s the reality. Be aware of this if you are considering selling your position.

Furthermore, expecting returns in excess of earnings growth from this starting point is a risky assumption, he added. “Your best estimate of returns will probably be earnings growth. However, given that valuations are currently high, it is possible that yields could fall below earnings growth if valuations start to normalize,” he explained.

By taking a valuation-based approach, Vetri feels much more comfortable with large-cap stocks. On the other hand, his comfort with mid and small caps is limited, largely because their valuations already take into account anticipated future growth.

Nilesh Shah, Managing Director, Kotak Mahindra AMC, emphasized that within stocks, investors should prioritize quality over momentum, favor large-cap stocks over mid- and small-caps, and focus on valuations. reasonable rather than expensive valuations as they move forward.

Mid and small cap show

When comparing Indian stock returns to other asset classes, gold returned 32%, while silver saw a 39% increase during Samvat 2080. The rupee fell 1% and 10-year bonds fell 5%. However, mid and small stocks on the BSE stood out as the best performers, rising over 40%, according to Capitaline data.

Shah believes it will be difficult to replicate the returns of the last five years in the next five years. “It is therefore essential to moderate our performance expectations,” he said.

Vipul Bhowar, senior director of listed investments at Waterfield Advisors, believes inflationary pressures, geopolitical uncertainty and the potential for a global economic slowdown could lead to further market corrections. “Against this backdrop, investors should focus on capital preservation and anticipate modest returns for Samvat 2081.”

It believes that sectors linked to national growth themes, such as finance (especially insurance), consumption (including ancillary sectors of real estate), energy (notably renewable energy) and healthcare , will experience good results.

Among all sectors, the best performers in the last Samvat were Nifty PSE, Nifty Realty, Nifty Healthcare index, Nifty Pharma and Nifty Auto, with returns of 44-60%. On the contrary, Nifty Media, Nifty Private Bank, Nifty FMCG, Nifty Bank and Nifty Financial Services were the worst laggards.

Siddhartha Khemka, head of research and wealth management at Motilal Oswal Financial Services, pointed out that “markets are moving towards defensive sectors to offset increasing volatility due to various headwinds.”

Discretionary consumption is expected to benefit from rapid changes in consumer purchasing behavior from unorganized/local to organized channels. The ongoing festive season, along with a better-than-expected monsoon from July to September 2024, has led to an increase in rural consumption, serving as a short-term catalyst for enhanced economic activity.

In the health sector, national activity remains solid, driven by niche product launches. Additionally, financial sector valuations remain favorable and, with improved growth visibility over the coming quarters, Khemka expects this sector to outperform. “Apart from these sectors, niche sectors like jewelry, electronic manufacturing, electric vehicles, renewable energy, e-commerce and digital themes are expected to witness significant growth,” Khemka said.

In the middle of a rate cut cycle

Samvat 2081 begins as a global rate cut cycle begins. With further cuts likely, investor confidence is expected to remain positive.

“The RBI adopted a ‘neutral’ stance in response, hinting at possible rate cuts in the next 6-9 months. We expect one to two rate cuts from the RBI at Samvat 2081, depending on inflation and growth dynamics,” said a Yes Securities (India) report dated October 28.

“Although capital outflows from FIIs have reached record levels so far, FII (foreign institutional investors) holdings as a percentage of market capitalization are well below the levels of the 2003-2007 boom cycle,” points out. the report. “We believe that the decline in risk-free rates and the stability of the Indian rupee will attract significant FII inflows, especially given the limited opportunities in sluggish markets like China. Clearly, India is in a long-term structural bull market, marked by manageable corrections along the way.

According to NSDL data, FIIs bought Indian stocks worth ₹82,414 crore, while domestic institutional investors (DII) acquired ₹4,62,069 crore shares from the start of Samvat 2080 till October 31, 2024.

All things considered, the US elections will be a crucial event to watch for investors in the new Samvat. Experts say market returns mainly depend on the overall economic landscape and the policies of the ruling party. Thus, understanding the positions of each candidate or party is important to assess their potential effects on different sectors.

The 2024 US election campaign has entered its final week, with elections scheduled for November 5. Opinion polls are extremely close, making it difficult to predict the outcome.

“The Democratic nominee, Vice President Kamala Harris, and the Republican nominee, former President Donald Trump, are neck and neck in both national polls as well as key state election surveys,” a JM report says Financial Institutional Securities dated October 31. Voting at the state level is most important, because the presidency is decided by the outcome of the electoral college. In most cases, the candidate who wins a state wins all of that state’s electoral votes, it reads.