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Markets in Dussehra spirit

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Indian markets got into the festive mood on Tuesday, a day before Dussehra, with equities gaining more than 2% amid positive global cues. Weak manufacturing data in the US raised hopes that the Federal Reserve would slow its pace of policy tightening.

The BSE Sensex closed 2.25% higher at 58,065, while Nifty50 settled at 17,274, up 2.29%.

All 20 sectoral gauges compiled by BSE advanced, with metal and financial services indices surging the most at 3.1% and 2.8%, respectively. The market breadth was positive with 2,572 stocks advancing compared with 874 that fell.

Also read: Myntra rolls out new festive campaign featuring Ranbir Kapoor and Kiara Advani

FPIs shopped for equities worth `1,344 crore on Tuesday, provisional data showed. Year to date, they continue to be net sellers to the tune of $22.3 billion.

“We believe the worst of the FPIs outflow is now behind us as the strong earnings growth and economic recovery will play out for the remaining months of 2022. The market will continue to be driven by macro-economic factors such as direction of the dollar index, bond yields, direction of inflation, growth in the developed world, and trend of commodity prices,” said a strategy note by Axis Securities.

The brokerage has set a target of 18,400 for Nifty for March 2023, valuing it at 20x FY24 earnings versus 22x earlier, indicating an upside of 6.5% from the current levels. “We cut the Nifty multiple to accommodate the rising interest rate scenario. Though aggressive policy tightening will help in curbing inflationary pressure, persistently elevated oil and commodity prices would continue to pose challenges to the market multiple in the next few quarters,” the brokerage said.

Asian and European stocks rallied on Tuesday after Wall Street soared overnight, fuelled by hopes that weakening US economic data would lead to a change in global central bank policy. Nikkei 225 rose 2.9% while Taiwan Weighted and Kospi gained more than 2% each on Tuesday. Britain’s decision to let go of its controversial plan to cut taxes for the highest earners, just 10 days after announcing it, boosted investor confidence.

India is the only market other than the US where equity valuations are extended versus domestic bonds, according to CLSA. At about 2 percentage points, the difference between India’s 10 year GSec yield and the Nifty’s earnings yield is at a point at which negative equity returns usually ensue. “The Nifty’s absolute PE is slightly below one standard deviation of its historical average and at levels where positive equity returns are usually not forthcoming. At the 98-99th percentile, India’s relative valuation to EMs and Asia ex-Japan is also near record highs. A simple mean reversion could drive a deep pullback,” the brokerage cautioned in a recent note.

Also read: PMGKAY extension: FCI wheat stocks to fall to buffer by January

Cool-off in the key commodity prices coupled with the central bank’s actions on front-loading the interest rates have changed the market style in the last two months. Banks, automobiles, hospitals, discretionary consumption, and domestic industrial themes look attractive in the near term over export and commodity sector themes, said Axis Securities. “Local or domestic-oriented themes are likely to perform better in the near term. We continue to believe that profitability will shift from commodity producers to commodity consumers going forward,” the brokerage said.

A long bull candle was formed on the daily chart with gap up opening. This indicates an upside breakout of the larger consolidation movement around 16,800-17,200 levels, according to analysts.

“The short-term trend of Nifty has turned up sharply after a broader range movement of the last few sessions. A decisive move above 17,300 levels is likely to pull Nifty towards the next crucial resistances of around 17,600 and next 18,000 levels in the near term. Immediate support is placed at 17,150 levels,” said Nagaraj Shetti, Technical Research Analyst at HDFC Securities.

Will Sensex, Nifty repeat Nov rally this month? Share market at all-time high; rebalance portfolio | INTERVIEW

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With BSE Sensex and Nifty 50 riding at all-time high levels, investors have an opportunity to get out of the stocks with weak fundamentals and invest in companies of high quality, said Hiren Ved — Director, CEO and CIO, Alchemy Capital Management. In an interaction with Surbhi Jain of Financial Express Online, Ved said that investors put in a lot of effort to time the market, which in his opinion should be utilised for identifying companies with strong fundamentals. For the upcoming initial public offers, Ved advised investors to evaluate each company on its merit rather than investing for short-term listing gains. Here are edited excerpts from the interview.

Equities are at all-time highs, should investors rebalance their portfolio?

Over half a dozen companies plan to launch IPO this month, what should be investors’ strategy?

In a bull market, there tends to be a frenzy for IPOs as the stock can give handsome returns on the day of listing itself. Our advice to investors would be to evaluate each company on its merit rather than just invest in an IPO for short-term listing gains.

What are your underweight and overweight sectors?

In the current environment, we are balanced across domestically correlated sectors like Financials, Consumer Discretionary and Autos but we also have exposure to global facing sectors like Pharma and IT. We are underweight on metals and commodity oriented sectors as we don’t invest in them but we expect these sectors to do well in short to medium term.

Post auto sales number for November, what trends do you see?

 Passenger vehicles and two-wheelers have been doing well ever since the economy started opening up due to increased demand for personal mobility. However, what is heartening is that we are seeing some signs of recovery in the commercial vehicles segment. This is important as MHCV sales are a good barometer of underlying economic activity.

With so much developments on COVID-19 vaccine, is it time to hold pharma stocks?

What one needs to appreciate is that Pharma by nature is a counter cyclical industry. The Pharma companies in India cater to a large domestic market of USD20bn+. They also have a large presence in the USD60bn+ generic market in the US. In fact in volume terms Indian companies cater to 40% of the US generic market. A few Indian pharma companies also have good exposure to Europe as well as emerging markets such as Brazil, Russia & China. Many large pharma companies are in the process of transitioning from pure generic plays to Speciality plays in the important generic market of the US. For this leading Indian generic pharma companies have invested a lot in research & development at around 8-10% of sales in the last 5 years. Along with it one has a large domestic market which tends to grow at 10% pa.

Another great opportunity for Indian Pharma companies is in the Global (Custom Development & Manufacturing) CDMO space. The CDMO market is expected to be USD 158bn by 2025 from USD 100bn in 2019 and is estimated to grow at 7%, with certain sub-segments such as biologics expected to continue growing in the low teens. To summarize, pharma is an industry with a steady base demand and lots of avenues for growth as far as leading Indian pharma companies are concerned.

Sensex, Nifty rallied 12% in November, what do you expect from Indian share market in December?

In November, we saw that FIIs pumped in US$8bn in Indian equities. This is the highest ever flow which India has received in a month and largely explains the rally which we saw in November. In fact, the Nifty is up 80% from the lows which we saw in March. After such a sharp rally, it is quite possible we could have a small correction. However, one should not be overly puttered by such intermittent correction although some correction in the short-term is very much possible. However, one should not miss the forest for the trees. Although nascent, there are some large macro shifts taking place both globally and in India. After a long time, we are seeing the dollar weakening, and the US current account deficit widening. Which bodes well for EM equities. If EMs do well, India will continue to get its share of passive flows. Moreover, it does seem that our country is at the cusp of a new growth cycle.

There is a clear impetus by the government on manufacturing, cost of capital has come down significantly and the health of the financial system looks far better than what it has been in the last five years. Notwithstanding the near-term gyrations, we continue to remain positive on markets from a medium to long term horizon.