Accumulate metals and materials stocks, asset-light real estate, resilient private sector banks, and well-capitalized smaller NBFCs. Investors are advised to remain invested in quality stocks.
Deepavali, the festival of lights, will be celebrated next week. For the Indian stock markets, it seems to have already arrived a week early. Despite clouds of uncertainty over US presidential elections and fear of prolonged legal battles that could have delayed outcomes, markets inched up to near new highs.
With Democrat candidate Joe Biden set to take over the White House, markets worldwide, including Indian bourses, will breathe a sigh of relief. Indian benchmarks indices are expected to cross all-time highs during the extended trading sessions beginning Monday.
The Indian markets will see a regular five-day trading session between Monday and Friday and a special Muhurat trading session on Saturday evening between 6:00 pm to 7:30 pm. Indian bourses will observe a holiday on Monday, 16th November, on account of Bhai Dooj.
Indian benchmarks, Nifty and Sensex, were upbeat throughout last week. Both gained on all five-trading sessions and posted one of the highest weekly gains since June 2020. Nifty closed the week at 12,263.50, and Sensex concluded the week at 41,893.06.
Both the Indian benchmarks are trading close to their all-time highs. Nifty and Sensex are just 170 points away from the all-time high of 12,430 and 42,063 points respectively.
Nirali Shah, senior analyst, Samco Securities, said, “Irrespective of the outcome of this year’s US elections, markets are expected to continue their celebratory mood in equities and commodities across the globe. Economies would also have to resort to path-breaking structural measures to keep the buoyancy live and running on a sustained basis. Else things can take an ugly turn.”
Foreign flows continued to be strong over the last week, with an inflow of around $500 million. Pressure on domestic institutions, however, continued. They withdrew close to $466 million during the period.
Hemant Kanawala, Head – Equity, Kotak Mahindra Life Insurance said, “From a valuation perspective, market P/B ratio stood at 3.37x, lower than the long -term average of 3.5x. Bank and metal stocks rallied strongly over the last week, providing the market with the “beta thrust” that is typically seen while markets tend to reclaim lost peaks.”
On the domestic front, right from diesel consumption and labour-intensive construction activities to GST collections, all major ground-level macro indicators displayed strong recovery to pre-COVID levels. However, certain facets of the economy are still reeling under the pressure of economic contraction while the markets are following a completely different path. However, India could be a key beneficiary in the post COVID era, given our economy’s comparatively superior structural orientation.
“We expect trade & manufacturing to improve as the current economy is normalizing while inflation is expected to remain above target levels,” said Vinod Nair, Head of Research at Geojit Financial Services.
Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services, said, “With the economic activity recovering fast, more earnings upgrade cannot be ruled out. Further strong global markets can keep the liquidity abundant in the system, thus providing support to the overall market.”
However, Shah said, “As we advance markets are expected to slow down their pace and take a breather in the near term, but the long-term bull trend seems intact.”
Nevertheless, the Indian markets may face some turbulence till the end of the month. Experts believe markets may be ruled by sentiments related to Bihar state assembly election results. Exit polls indicate a big win for Tejasvi Yadav led RJD and Mahagathbandhan. It could be a setback for the ruling JDU-BJP combine and Prime Minister Narendra Modi.
The long wait for another round of stimulus around Diwali from the Indian Government seems far-fetched. All hopes seem to be dying, given that Bihar elections have been concluded. It may not bode well for the domestic market and is likely to disappoint investors once the euphoria around the US election subsides.
“Given the immense liquidity being flushed in the global economy, it would be appropriate to accumulate metals and materials stocks, asset-light real estate players, resilient private sector banks, and well-capitalized smaller NBFCs which have momentum left for a likely upside. Investors are advised to continue to remain invested in quality stocks,” Shah said.