MUMBAI : A benign interest rate scenario amid stimulus measures of the government are expected to improve growth recovery and boost stock markets in Samvat 2076, the Hindu calendar year that starts on Diwali.

According to analysts, despite global recession fears, an accommodative domestic monetary policy, stable political environment and reforms like the recent cut in corporate tax rates will keep markets buoyant next year.

In Samvat 2075, Sensex was up 12.31% while the 50-share index Nifty gained 10.75%. Though the gains by benchmark indices in Samvat 2075 was better than the previous year, it was a challenging time for investors with bouts of volatility in equities, tepid corporate earnings, liquidity crisis and slowing economic growth that started with the fiasco at non-banking financial companies that began with the Infrastructure Leasing and Financial Services Ltd (IL&FS) crisis, spreading gradually to other sectors such as auto, discretionary and some parts of staples.

“Liquidity issues post (the) IL&FS crisis continued for the better part of the year. Credit ratings of quite a few corporates were cut. Credit rating downgrades were at a 27-quarter high in June quarter. Though RBI took measures to infuse liquidity and cut repo rates, the transmission of these measures was not full and with much delay. Markets punished companies with managements of doubtful integrity and poor governance. The year was characterized by trust deficit generally, which kept worsening at least till September," said Deepak Jasani, head of retail research at HDFC Securities Ltd.

Graphic: Paras Jain/Mint
Graphic: Paras Jain/Mint

Analysts said that the divergence between performances of largecap stocks to mid and smallcap stocks may correct in Samvat 2076. In Samvat 2075, BSE Midcap index was down 2.09%, while BSE Smallcap index fell 8.94%.The indices lost 8.39% and 15.61% respectively in Samvat 2074.

Shiv Sehgal, president and co-head, institutional equities, Edelweiss Global Investment Advisors, said the outlook for Samvat 2076 remains a lot more bullish. While he has a 12,000 target for Nifty next year, Sehgal thinks divergence within Nifty stocks will correct and midcaps will outperform in Samvat 2076. “The coordinated policy responses both by the government and RBI warrant an aggressive stance in portfolio construction for investors in India. The combination of sharply lower interest rates and overall reduction in cost of capital will spur a strong rebound in investment spending," Sehgal said.

Axis Securities Ltd expects good monsoon, bumper crops coupled with better minimum support prices (MSPs) for farm produce to improve rural incomes and consumption next year. “Further, given the contained inflation, benign inflationary outlook and supportive central bank, the cost of funds are expected to stay low and reduce further thus supporting institutional capital expenditure and personal consumption over next couple of years. With stability on the political front, pro-business government in place, reducing cost of capital, and growing opportunities as the Chinese companies are vacating the space due to losing competency, foreign investments be it as FDI or FPI is expected to increase in India which would drive growth in the economy," said Axis in a 10 October note.

Others agree. Jasani said festive season offtake has been good, going by the first indication while monsoon has been reasonably good, which will have an impact on urban and rural consumption. “These developments along with the measures announced by government over the past few months may be able to turnaround sentiments and result in resumption in sustained growth for the economy," he said. “US China trade issues, Brexit outcome (though UK and EU have entered into an agreement), crude oil prices, geopolitical developments and global growth are some factors that will keep impacting sentiments as well as growth."

Among other asset classes, the rupee gained 2.55% against the dollar while gold prices jumped 21.24% in Samvat 2075. In the previous year, the rupee fell 10.91% while gold prices declined 4.21%.