Which way will Sensex swing in new Samvat? Inaugural Mint survey joins the dots

How far lies the 100,000 milestone for Dalal Street? Will retail investors keep faith on the way? Is a market correction around the corner?

Ahead of the dawn of Samvat 2081, Mintreached out to 16 analysts to gauge the mood of the market, in the inaugural edition of a quarterly survey. The big question on everyone's minds: Will the Sensex touch the six-digit frontier soon, or will turbulence hold it back?

In a split verdict, nearly half (47%) of those who answered expressed some optimism that the index will reach the milestone by March 2025. Others voiced doubt (53%), mainly citing global challenges. That said, most were confident about the outlook for retail investors, stating China’s recent stimulus measures won’t cost India in terms of much-needed foreign portfolio inflows (FPIs).The Mint poll covered research heads, founders, chief executive officers (CEOs) and senior fund managers at mutual funds, financial services firms, and investment banks.

Market dilemma

Indian stocks recently scaled impressive highs, but signs of a correction are getting stronger. FPIs have begun to withdraw capital amid uncertainties over the US elections and the conflict in West Asia.

Two of the 16 analysts—Bino Pathiparampil, head of research at Elara Capital and Pankaj Pandey, head of research at ICICI Securities—were “highly optimistic" about the Sensex’s potential to reach 100,000 by March. Five were moderately or somewhat optimistic.

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Atul Parakh, CEO of online investment and trading firm Bigul, who was somewhat optimistic, said there was potential to reach the 100,000 mark, but called for caution. “While robust corporate earnings and strong foreign investment could propel the index towards this milestone, it may take longer, potentially until late 2025 or beyond, due to market corrections and economic uncertainties. Historical growth rates indicate support for the notion of gradual growth rather than a rapid surge to the target."

Eight analysts were pessimistic. Gaurav Garg, a research analyst from Lemon Markets Desk, said the 25% rally needed to touch 100,000 was highly unlikely. He said valuations remain stretched even after the pullback in October, and recent corporate earnings guidance was tepid at best, not to forget external uncertainties.

Volatility in focus

A significant majority (63%) rated the current volatility as moderate, while 19% said it was low (the rest viewed it as high). Some also shared their outlook: Pandey, apart from Dhiraj Relli, managing director and CEO at HDFC Securities; Sanjeev Hota, head of research at Sharekhan by BNP Paribas, anticipate volatility to remain “moderately high" for now.

Where is the market headed in the rest of 2024? Around 43% of experts foresee a correction, followed by a recovery by year-end; as many expect a rally marked by volatility. One said the market would end the year lower than now, while another said a rally is expected hereafter.

 

 

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Earnings growth under scrutiny

All but one analyst in the survey said earnings growth was likely to be modest at 5-10% in the September-ended quarter. (One forecast a stronger increase of 10-20%.)

Shrikant Chouhan, head of equity research at Kotak Securities, projected a 5.3% year-on-year rise in net profit for Sensex companies, with modest growth across various sectors. “We expect a low-to-mid single-digit increase in net income of banks (due to slower loan growth), capital goods (due to weakness in domestic execution), consumer staples (mixed trends on growth/margins) and transportation sectors…Oil, gas and consumable fuels will drag down overall net income growth," he said.

Hota predicted only a 2% growth in Nifty earnings, slowed primarily by oil marketing companies (OMCs), cement and metals. Excluding OMCs and metals, he said Nifty 50 companies could post a 7% growth, but called for caution, with external factors looming large.

External influences and US Fed

Much could hinge on the US Federal Reserve’s course of action: 73% of those surveyed predicted the Fed would lower interest rates in December, a move that could have positive ripple effects in India. “The Indian market is expected to resume its rally following a period of correction," said Sorbh Gupta, senior fund manager (equities), Bajaj Finserv AMC.

Chouhan said that following the Fed's recent 50-basis-point rate cut, a similar reduction by year-end could attract foreign capital inflows into India, particularly if investors seek higher returns in a growing economy.

Hota pointed to MSCI India's historical performance following Fed rate cuts, noting that such conditions have generally favoured the Indian market, particularly in non-recessionary environments.“A total of 250-bps rate cuts in this easing cycle by 2026 means that there will be trillions of dollars in fixed income looking to move to high-yielding assets including equities in emerging markets, which augurs well for Indian equities," he added.

China’s stimulus and foreign investments

The Mint survey also examined the impact of China’s recent stimulus measures on FPIs in India. Half the respondents had a “neutral" outlook, with Pathiparampil saying it would depend on various factors, including the effectiveness of China's stimulus and India's own economic performance. But around 44% disagreed that this would lead to any sustained shift away from India.

Gupta said that while there could be some short-term movement, a significant or lasting outflow of FPIs from India wasn’t likely. Deepak Shenoy, founder and CEO of Capitalmind, said China’s stimulus would have minimal impact on FPI flows to India.

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Retail investor sentiment

Despite market challenges, retail investors maintain a bullish outlook, with 69% of market experts in the survey confident that this trend would persist. Radhika Rao, executive director and senior economist, DBS Bank said, “While there could be near-term adjustments as retail investors experience volatility in their returns, the more persistent SIP flows are likely to persist on account of dollar cost averaging approach." Hota said stable domestic macroeconomic conditions, characterized by lower inflation and strong consumption, support ongoing equity investments. He anticipates a shift in leadership from small- and mid-cap stocks to more appealing large-cap stocks.

However, 25% of experts expressed uncertainty about the future. Shenoy said, “The market hasn’t even corrected 10% in 2024, and not even 20% in the last two years. When it does cut back that much, we will see how strong retail flows continue. But we have been surprised in 2022, when retail flows increased on the back of volatility, so we cannot predict that it will slow or rise."

Gupta cautioned that continued market declines could lead new investors to face losses in their mutual fund portfolios, potentially prompting them to halt investments or redeem their funds.

The survey also showed that experts see the banking and financial sectors as still undervalued, with Gupta specifically highlighting private banks as undervalued. “Earnings have been upgraded over the past few quarters, yet the sector has experienced a derating. The risk-reward profile now seems favourable," he observed.