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Can Bull Run On Dalal Steet Sustain Pace?

Author: Dasari Sreenivasa Rao/Friday, April 9, 2021/Categories: Exclusive

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Can Bull Run On Dalal Steet Sustain Pace?

Will the stock market rally that gave a stupendous returns of over 80 per cent in 2020-21 financial year, sustain in the current fiscal (FY22) too? It's a billion dollar question making investors chary about future course of market direction in the year ahead. Market analysts opine that the domestic stock market may not sustain the unexpected boom of 2020 in 2021, but can grow in double digits. However, the rising bond yields in the US have turned out to be a cause of concern for Indian investors as it's keeping pressure on the domestic markets. Further, concerns about credit quality among the Indian corporates again resurfaced amid ongoing second wave of Covid-19. FY21 was a comeback year for the domestic stock market. However, the second wave of Covid-19 will pose a major threat to the bull run. With reforms and stimulus packages in place, we can expect good quarterly results from the listed companies, but vaccination pace will impact the trend, observe a senior market analyst. 
The market bellwether BSE Sensex recorded a whopping rise of 22,438.88 points, or 81 per cent, in 2020-21 financial year, while broad-based NSE Nifty gained by 6,783 points or 83.90 per cent from the lows hit after the announcement of lockdown in late March 2020. "The FY21 turned out to be an unpredictable year for everyone. Returns were high as low base formed in late March 2020 due to the lockdown. Subsequently, key indices rallied based on recovery, stimulus packages, slowdown of pandemic spread and vaccine news.
Earnings growth was good. All these factors made a spectacular bull on the bourses in FY22. But it's difficult to predict such a bull party this fiscal also. Valuations are high. Bond yield rise and dollar index will moderate valuations ahead. Investors can focus on FMCG, IT stocks and high quality of Nifty stocks. Hence, investors are advised to stay invested in economy-driven stocks. Mid-cap and small-cap stocks are expected to post good returns for the current fiscal. Investors are advised to be cautious as risk may come from any quarter. Now, all eyes on fourth quarter (Q4) results from India Inc. 
Analysts are not bothered about inflation impact on the stock market. "When interest rates are very low or negative, Indian inflation is high due to rising petrol prices and food prices. Otherwise, India has no major inflationary trigger. Inflation price rise in FMCG, pharma sectors will go up further," remarked the analyst.
Another analyst added that "in last 20 years, Indian markets never delivered more than 50 per cent returns in two consecutive years. So, the 70-80 range returns in FY21 may not happen in FY22. I advise investors to keep expectations low this year. If you had inflation and GDP growth, we can expect 15 per cent return in FY22."
"Stock prices are high as investment bankers were riding on bull wave when the appetite was strong. the number of IPOs listing at premium and stocks are trading well. We advise investors to consider the fundamentals of the company and industry. Hence, investors need to be cautious. FY22 looks promising as we can expect good returns from the corporates in the wake of industrial productivity coming back to normal and better than FY21. Second wave of pandemic will definitely impact the economy, but may not derail the growth rate. India is now used to pandemic work conditions. If second wave turns out to be more fatal, then India may go for localised lockdowns. In overall, economic activity may not be disturbed as the factory output, services and agricultural operations will continue under Covid restrictions," says the analyst.
On the other hand, the investors in the domestic stock markets are relying on the strong US factors such as $2-trillion infrastructure fund support announced by the US President Joe Beden. 
"The infra support will boost the US markets and in turn, it'll propel Indian benchmark indices as well. Correction and consolidation in between are expected. Resurfacing Covid cases will also impact. Profit booking is not ruled out on every rise in the market. Indian currency is more or less stable in the forex market. Further bond yields globally will support FPIs. By end of FY22, investors should start discounting FY23 earnings," said a senior equity analyst at a Mumbai-based brokerage firm. 
Another  analyst says that "considering the 300-400 pips premium of equity PE over bond PE, we can justify Nifty to trade at 19-20 times of forward basis. We forecast Nifty and Sensex to close FY22 at 15,500 points and 52,300 points respectively."
Derivatives analysts suggest "investors should buy Nifty-50 Puts to protect portfolios once the Nifty reaches 15,500 level or create some cash by selling some part of the stocks. If Nifty tumbles to 14,000 level, then accumulate stocks."
The US stock market seems to have priced in a stronger economy, but second wave of Covid is raising the risk that any disappointment in the recovery will rattle investors, particularly when the S&P 500 about 60 per cent above its March 2020 low.
The Nasdaq registered a double-digit gain for a second straight year in 2020. According to DataTrek Research, the 14 other times that's happened since 1972, the index climbed in double digits at least one more year four times. At this juncture, market analysts observe that it's not easy to forecast hefty gains in three years in a row in the US markets.

Earnings Growth
Vaccination drive along with earnings growth will determine India's stock markets' trajectory in FY22, observe rating and financial firms. According to Motilal Oswal Financial Services Ltd (MOFSL), two things will drive the markets. Given the recent resurgence in Covid-19 cases, the pace of vaccination will assume crucial importance. Secondly, the expectations for FY22 earnings are running high at more than 30 per cent growth in Nifty FY22E EPS. Given the rich valuations, any misses on FY22 earnings delivery may act as dampener.
The market capitalisation-to-GDP is at a new year-end high of 105 per cent. In FY21, the NSE Nifty ended last fiscal with a stellar 80 per cent rally. The hefty returns due to the low base of FY20 when markets fell 26 per cent after the lockdown announcement.
MOFSL in its latest report said: "The market delivered positive returns in all four quarters of FY21. FII flows in equities in FY21 were the highest ever at $37.6bn, while DII equity flows saw outflows after five consecutive years of inflows. All sectors delivered positive returns in FY21. Top gainers in the sectoral space were Metals, Autos, Technology, Real Estate and Private Banks while Consumer underperformed. The theme of FY21 was high beta, cyclicals and value. Quality and defensive themes, the flavor of the past few years, took a breather."
Furthermore, the report pointed out that the market breadth was positive in FY21, with 49 Nifty stocks closed higher. India recorded the highest ever FII inflows of $37.6 billion, which was greater than the cumulative inflows of the last six years. DIIs recorded the first outflows of $18.4b after five years of inflows.

Public-equity mobilisation doubles from Rs 91,570cr in FY20
The entire 2020-21 financial year was influenced by the Covid-19 pandemic. Despite the pandemic effect, Indian corporates mobilised Rs1.88 lakh crore through public-equity markets and it's an all-time high level, according to Prime Database Group, India's premier database on the capital markets.
India Inc in 2019-20 raised Rs 91,670 crore and it was doubled in FY21, said Pranav Haldea, MD, PRIME Database Group,. The previous highest amount raised in a financial year was Rs1.75 lakh crore in 2017-18. 
Haldea further stated that contrary to the despondency due to the pandemic, 30 main-board IPOs came to the market collectively raising Rs 31,268 crore. This was an increase of 54 per cent from the Rs 20,350 crore raised through 13 IPOs in 2019-20. The largest IPO in 2020-21 was from Gland Pharma for Rs 6,480 crore. The average deal size was Rs 1,042 crore. 
The overall response from the Indian investors to the mainboard IPOs was very encouraging. 18 IPOs received a mega response of more than 10 times, while 4 IPOs were oversubscribed by more than 3 times and the balance 8 IPOs were oversubscribed between 1 to 3 times. 
Particularly, the retail investors participated in a big way. The highest number of applications was received by Indigo Paints (25.88 lakh) followed by Mtar Technologies (25.87 lakh) and Mazagon Dock (23.56 lakh). 
According to Haldea, response to IPOs was further buoyed by strong listing performance of IPOs of the year. Of the 28 IPOs, which got listed, 19 gave a return of over 10 per cent (based on closing price on listing date). Burger King gave a stupendous return of 131 per cent followed by Happiest Minds Technologies (123 per cent) and Indigo Paints (109 per cent). Moreover, 18 of the 28 IPOs (listed thus far) are trading above the issue price (closing price of March 26, 2021).
The IPO pipeline continues to remain strong with 18 companies holding Sebi approval proposing to raise nearly Rs18,000 crore and another 14 companies are awaiting Sebi approval to raise nearly Rs 23,000 crore.
Offers for Sale (OFS) through bourses, under OFS, promoters will raise money by diluting their stake, grew from Rs 17,326 crore in 2019-20 to Rs 30,114 crore in 2020-21. Of this, the Government's divestment accounted for Rs 19,927 crore or 66 per cent of the overall amount). The largest OFS was that of Tata Communications (Rs 5,386 crore) followed by Hindustan Aeronautics (Rs 4,961 crore) and IRCTC (Rs 4,408 crore). OFS accounted for 11 per cent of the total year's public equity markets amount. 
FPOs made a comeback after several years. This was primarily on account of the mega Yes Bank FPO, which raised Rs 15,000 crore. Overall, 2 companies mobilised Rs 15,029 crore through FPOs.
31 companies mobilised Rs 78,731 crore through QIPs, highest ever in a financial year. This was 54 per cent higher than Rs 51,216 crore raised in the previous year. The largest QIP of 2020-21 was from ICICI Bank raising Rs 15,000 crore, accounting for 19 per cent of the total QIP amount. QIPs were dominated by banks, NBFCs and real estate companies with them accounting for 84 per cent (Rs 66,141 crore) of the overall amount.
According to Sandeep Bhardwaj, CEO (retail) at IIFL Securities, the Indian IPO pipeline for FY22 comprising 28 companies holding markets regulator Sebi's approval for raising nearly Rs 28,710 crore through initial share-sale going forward (IPO). Companies including LIC, HDB Financial Services, NCDEX, ESAF Small Finance Bank are lined up with their IPOs in 2021-22 fiscal, said Rajendra Naik, MD (investment banking), Centrum Capital. 
Adding depth to the IPO markets, companies from diverse sectors like jewellery, technology, specialty chemicals, banking and financial services have made their way to the IPO space during the period under review. 
"The biggest factor driving companies to fund-raising through IPO is the bull run in the stock market. Improved sentiments in the secondary market acted as a support for the primary market," Naik said. 
Key factors such as more than sufficient liquidity, better than expected economic recovery are adding to the market sentiment and the same was visible in the primary market. Making similar statement, Bhardwaj further said availability of ample liquidity in the system across the world, new sectors businesses with immense opportunities and optimism around the Indian demography, demand and growth story triggered the IPOs' gold rush. 
Moreover, enthusiasm in the stock market has been attracting large number of retail investors into the market. New retail investors are very active and going aggressively applying for IPOs. Analysts advise investors to be discrete in selecting IPOs. Another major factor that's boosting IPO rush is decline in Fixed deposit (FD) interest rates. The FD interest rates are declining in every decade. 
The major IPOs in 2020-21 include Gland Pharma (Rs 6,480 crore), Indian Railway Finance Corporation (Rs 4,633 crore), CAMS (Rs 2,240 crore) and UTI Asset Management Company (Rs 2,160 crore). Further, Rossari Biotech, Kalyan Jewellers India, Barbeque Nation Hospitality, RailTel Corporation of India, Angel Broking, Home First Finance Company and Suryoday Small Finance Bank among others tapped the IPO route to raise funds. According to INVEST19, the Indian IPO market for next three years is expected to witness a great boom space as a favourable Union Budget with a decade growth view, market at all-time high, domestic, retail and foreign portfolio investors (FPIs) remain bullish. 
The writer is a business journalist with 27 years of experience 


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