I foresee a Vigorous Bull run in 2018 and expect Nifty to touch 13,000 level at some point during the year. Here are four reasons why:
- Global buoyancy to have rub-off effect
All-round improvement in global macros and low cost of capital underpins the buoyancy in global equities. In the US, the impending tax reforms and attractive dividend yields have strengthened the equities’ value prop. Likewise, European markets are poised for a strong upside given the persistent strength in manufacturing and exports. The Indian markets would undoubtedly get a huge boost from the rub-off effect. Although FPIs have been largely active in primary markets more recently, we see action returning back to the secondary markets as well.
- Domestic liquidity will remain committed to equities
The credible domestic participation persists, with mutual funds till date having bought US$16bn of equities this calendar year, more than double of the 2016 purchase. Domestic money will continue to get routed to equities given its attractive yields and lack of opportunity in bonds, real estate and gold.
- Sentiment to remain upbeat
Investment climate certainly looks sanguine following reform announcements like PSU bank recapitalisation and big-ticket infra projects like Bharat Mala. The recent measures aimed at simplifying GST augur well for the business sentiment going forward. The GDP rebound has paved the way for achieving stronger economic momentum. The recent upgrade in India’s sovereign credit rating and the jump in ‘Ease of Doing Business’ rankings is a global validation of the government’s positive intent. The Gujarat poll outcome has more than bolstered investor sentiment. Expectations of similar victories in assembly elections in 2018 will be even higher now.
- The earnings hope revival will remain
Corporate earnings in Q2FY18 were better than expected. Although this is not a guarantee of a full blown recovery, earnings recovery in domestic facing sectors, PSU performances which have been a drag for several quarters and globally-linked commodities, is highly encouraging. The drag comes from sectors like Pharma, which are outward facing.
The low base of the previous years, bottoming of capex cycle, low interest rates, boost from infra spends are reasons why the hope of earnings revival will remain alive among investors. I personally see a big recovery in earnings closer to FY20, which will start getting discounted next year.