Nifty, Sensex log worst Samvat returns in 15 years. What lies ahead in 2083?

The Samvat year gone by has been one of the toughest for Indian equity investors in over a decade. The BSE Sensex slumped 8% and the Nifty 50 shed 7% in Samvat 2082, putting them on course for their worst Samvat-year performance since Samvat 2067, when both headline indices declined over 17%.

The underperformance of Indian equities in Samvat 2082 is a reflection of the difference between economic growth and stock market performance, said Ankur Punj, managing director of Equirus Wealth.

“A strong economy does not necessarily translate into strong equity returns, particularly when valuations are elevated and earnings growth does not meet market expectations,” Punj said.

Weakness in the Indian market was due to global capital being allocated to artificial intelligence-led sectors, which we lacked, and this, coupled with geopolitical uncertainty and high crude oil prices, led to persistent foreign institutional investor selling, putting huge pressure on the rupee, he explained.

While earnings prospects have improved after three difficult years, annual earnings-per-share (EPS) growth of 10-11% over the next decade seems realistic, according to Saurabh Mukherjea, founder and chief investment officer of Marcellus Investment Managers. He said the Nifty’s current price-to-earnings (P/E) ratio of about 18 could revert to its long-term average of 15.

“However, valuation normalization could limit index returns to high single digits, below its 30-year annualized return of 12.5%. Quality stocks, meanwhile, could deliver returns of 15-20%,” Mukherjea said.

He noted that rising interest rates, geopolitical uncertainty, household debt and AI-related challenges could create conditions similar to December 2007-January 2014, when the broader market struggled but quality stocks returned 15-20% annually.

Losers & winners

The correction has made valuations more attractive across parts of the market, but a rising tide may not lift all stocks equally, market participants said.

The Nifty Metal Index (22%) and the Nifty Pharma Index (21%) led the Samvat 2082 rally, while the Nifty FMCG Index (-18%) and the Nifty IT Index (-9%) brought up the rear.

Punj said Samvat 2083 could be a year of earnings-led recovery, with better-than-expected results from largecap stocks such as Reliance Industries, HDFC Bank, ICICI Bank and Larsen & Toubro.

Among the Nifty 50 stocks, BSE (52.3%), Shriram Finance (38.6%) and Titan Company (29.6%) were the best performers. ITC (-32.5%), Tata Motors Passenger Vehicles (-26.9%) and HDFC Life Insurance Company (-26.8%) were the worst hit.

Sid Swaminathan, managing director and chief executive officer of JioBlackRock Asset Management, remains cautiously constructive while entering the new Samvat year.

“India’s structural growth story remains compelling, but this is an increasingly differentiated market and that calls for greater selectivity, with a focus on where structural growth, earnings visibility and valuations come together to support sustainable returns,” Swaminathan said.

Nilesh Shah, managing director of Kotak Mahindra AMC, sees opportunities in consumption, particularly discretionary spending and premiumization across automobiles, alcoholic beverages, travel and tourism.

“Banking and financial services are another area we like,” Shah said.

“After a ~10% correction from record highs, midcaps trade 6% below their long-term average, while smallcaps remain at a 25% premium; thus, one needs to follow a selective approach in stock picking,” Motilal Oswal Wealth Management said in a report.

For Samvat 2083, the firm is positive on banking, financial services and insurance (BFSI) and capital markets, manufacturing, global outsourcing/exports, and consumption and digital.

Drivers and disruptors

Swaminathan said investor persistence is becoming a concern. If new investors see the market fall 5-10%, panic and exit, they may never return, he explained. So, the next challenge, according to him, is to educate investors and help them stay invested.

Talking of the sustainability of bumper returns or the biggest downside risks, Punj of Equirus Wealth said the next sustainable market rally will have to be driven by earnings growth rather than merely liquidity or valuation expansion. The market needs a combination of improving earnings, reasonable valuations and a supportive global environment.

He sees rising crude oil prices as the biggest risk for Indian equities while investors need to keep an eye on the global interest rate trajectory and liquidity.