Look beyond Samvat 2078

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As we bid goodbye to Samvat 2077 and welcome Samvat 2078 it would be appropriate to look at the sectors that outperformed and those that lagged. Realty, Metals, PSU Banks and IT outperformed with 128, 111, 108 and 64 percent returns respectively while Pharma and FMCG underperformed with 18, 22 percent returns respectively. With the Sensex and Nifty hovering around 60000 and 18000 as Samvat 2077 comes to an end, the million-dollar question is: what is in store for markets in Samvat 2078 and, more importantly beyond 2078?

After the spectacular returns of in Samvat, 2078 investors should prepare for modest returns in Samvat 2078. However, as always, certain sectors and individual stocks will outperform. The challenge is to identify these potential winners. Sectoral rotation always happens. One of the best performing sectors during Samvat 2078 would be banking since there are clear signals of credit growth, which was muted last year. So, the leading private sector banks, the top 2 or 3 names in PSU banks and the leading names in mortgage and Fintech are poised to do well. The star performers of Samvat 2077 – Realty and Metals – will continue to be resilient since the boom in these segments appear to be multi-year stories.

Accelerating digitization, globally, augurs well for IT too. All construction-related segments – cement, ceramics, paints, adhesives and electrical – stand to benefit from the construction boom.

Profit from the imminent economic expansion

India is on the cusp of an economic expansion that can sustain average annual GDP growth of 7 percent culminating in an average annual earnings growth of 20 percent for the next 4 to 5 years. Corporate profits to GDP which touched a low of 1.6 percent in FY20 has already moved up to 3 percent and are well poised to rise above 4 percent in FY 22. According to IMF, India will be the fastest-growing large economy in the world in 2021 and 2022. If we can sustain the high growth rate for 4 to 5 years, the market can move up again, in spite of lofty valuations. Of course, there will be sharp corrections during the rally.

What are the factors that can drive and sustain this cyclical expansion? The pro-investment policies of the government – low corporate taxes, labour reforms, privatization etc -, beginning of a private capex cycle, booming exports, rising FDI and an impressive start-up eco-system can certainly be major catalysts for growth.

Plan not for Samvat 2078, plan for Samvat 2087

Why Samvat 2087? That would be calendar year 2030 and India is likely to be a $ 7 trillion economy by then. Corporate profits stand a good chance of moving up from Rs 5.31lakh crores in FY21 to around Rs 20 lakh cr by 2030. This nearly 4-fold explosion in corporate profits can take the benchmark indices to levels unimaginable now. Yes, this is a bullish scenario, but achievable.

So, look beyond Samvat 2078; plan for Samvat 2087.

(The author is the Chief Investment Strategist at Geojit Financial Services. Views expressed are personal)