Indian stocks are tipped for a strong showing by year-end

Opinion among experts indicate that the country’s main stock index would exceed the record high it hit before the latest coronavirus wave took hold by year-end, with most of them predicting modest growth and limited downside risks.

If analysts were to be taken at their word, then it would appear that the reported drop in daily Covid-19 infection rates is having a positive impact on the Indian markets which illustrates cautious optimism.

A poll among forecasters, conducted by Reuters, indicated that the country’s main stock index would exceed the record high it hit before the latest coronavirus wave took hold by year-end, with most of them predicting modest growth and limited downside risks.

The decision by the GoI to provide an economic stimulus packagefor the sectors worst affected by COVID-19 could act as an additional comforter to the economy.

$3 trillion reasons to showcase potential

On Monday, Market capitalisation at India’s oldest stock exchange hit $3 trillion for the first time, triggered by the fastest $500-billion jump in history. This has also shown the country’s potential as one of the biggest and fastest growing economies in the post-pandemic era.

READ MORE ON INDIA & ECONOMY:

India’s economy desperately needs that shot in the arm from the vaccine

Amidst the second pandemic wave, May was crucial for the Indian economy

Will the monsoon season shower the Indian economy with good fortune?

Women are making their presence felt in India’s gig economy

The market cap shot up to $2.5 trillion on December 16, 2020. On Monday, the valuation touched $3 trillion, and the time taken for adding the last $500 billion was 159 days — the fastest till now. The only other countries that have a stock market capitalization of more than $3 trillion are the US, China, Hong Kong, Japan, UK, France, and Canada.

After recovering from the first wave of the pandemic the Indian economy seemed to have been turning the corner with massive FDI’s coming in from blue-chip companies. The India billboard was glittering with neon lights. Prior to that the country had brought home a lacklustre economic report card in 2020, its worst in four decades, which hit the equity market hard.

After its record high of 52,516.76 in February, the benchmark S&P BSE Sensex rose modestly in March and declined about 1.5% in April. But daily infection rates in the second wave have now started declining and the index is up around 6% for the year, with over half of those gains achieved in recent weeks.

A study by Reuters of more than 30 equity analysts seems to indicate the addition of another 5% and hitting a record 53,200 by end-2021, albeit not much higher than February's peak and well below what was expected three months ago.

Bourse forecast to rise 8% by mid-2022

From Tuesday's close of 50,637.53 the Indian bourse was forecast to rise nearly 8% to 54,500 by mid-2022. It was then forecast to close out 2022 at 58,500.

According to CA Rudramurthy, managing director at Vachana Investments, "The equity market looks at what it might be three to six months down the line, by when corporate earnings, economic activity and growth should pick up. But trading will be more selective this year than in 2020, when it was more speculative, and you could buy any stock and prices just kept rising - that bit is done."

READ MORE ON INDIA & FDI:

FDI in defence will bring together best technologies and talents in the Indian defence industry

$100bn reasons why foreign investors have pumped FDI, FPI into India

Insured to rise: FDI limit hike in insurance will help Indian cos raise funds, upgrade tech

Foreign investors give thumbs up to economy, pour record FDI into India

When queried on the risks to the Indian stock market outlook from the coronavirus crisis still gripping the country, 66% of analysts, or 21 of 32, said it was low. The remaining 11 said the risk was high. It is believed that all the bad news from the COVID-19 second wave is done and dusted and is already discounted in stock prices. Even if the expected third wave hits, it wouldn't be a new situation. The uncertainty - which markets do not like - from the previous waves will apparently not be there anymore.

The key, however, to fixing the economic woes lies in a streamlined and effective vaccine rollout among the population. More needs to be done while taking into account the pressures of availability of vaccines in the country. Thus far indicators show that less than 4% of India’s 1.35 billion population have receiv3ed the vaccine and this leaves the economic progress at more risk brought about by lockdowns and lethargic activity. If the vaccination drive picks up pace it could have a positive effect on infection rates and on the markets.

Overall, it appears that experts are leaning towards the view that this year’s outlook would be "balanced with a limited downside." The high valuations of Indian equities suggest markets are pricing in a very strong growth momentum. But growth prospects are softening somewhat...and in that context one should not expect too much of an upside.