Reforms induce bull run in equity markets despite some volatility

By Porisma P. Gogoi and Rohit Vaid

Mumbai, Dec 30 (IANS) Economic reforms, coupled with political stability and prospects of higher future growth led market participants to bet "big and long" on the Indian equity markets during 2017.

However, the year was not without its share of lows -- from dampening second quarter growth numbers to the chaos that followed the Goods and Services Tax (GST) implementation and threat of a nuclear showdown in the Korean peninsula -- induced volatility in the indices.

According to market observers, despite a continuous outflow of foreign funds, the future potential of the Indian equity markets encouraged domestic traders to take a long-term view of their investments.

The upward traction led the key equity indices -- Sensex and Nifty50 -- to close higher by 28 per cent and 29 per cent respectively.

The barometer 30-scrip Sensitive Index (Sensex) of the BSE augmented by a massive 7,430 points or 27.90 per cent to close at 34,056.83 points from last year's close at 26,626.46 points.

The small-cap and mid-cap indices outperformed the Sensex on the back of strong liquidity. During 2017, the S&P BSE mid-cap index surged over 47 per cent and the small-cap index by over 58 per cent.

On the National Stock Exchange (NSE), the broader Nifty50 surged by an equally impressive 2,344.90 points or 28.64 per cent to close at 10,530.70 points from its 2016 close at 8,185.80 points.

"The year 2017 has been a great year for Indian stock market as it grew by approximately 28 per cent driven by liquidity, following likely continuity in economic policies, government initiatives and reforms, improvement in corporate earnings (expected) and positive global cues," D.K. Aggarwal, Chairman and Managing Director, SMC Investments and Advisors told IANS.

Not just on a standalone level, the Sensex and Nifty50 were amongst the best in attaining healthy growth rates globally. They were the best performing benchmark indices among the BRICS (Brazil, Russia, India, China, South Africa) group of countries.

In terms of events, the after-effect of demonetisation (November 8, 2016) and the mid-year roll-out of the one-tax GST system had a profound impact on the markets.

"Demonetisation witnessed large-scale cash deposits in equities and mutual funds (MFs) emerged as preferred investment options," Anand James, Chief Market Strategist, Geojit Financial Services, told IANS.

"Retail investors gradually started moving away from low yield assets like fixed deposits and are flocking towards MFs with around Rs 5,000 crore worth of SIPs (systematic investment plan) every month," he added.

The other key event was implementation of the GST. It had resulted in short-term disruptions in businesses and subsequently impacted equity indices, said analysts.

"The immediate impact of GST implementation led to slowdown in revenues and earnings of various cash led sectors, however, the impact is expected to fade in Q3 FY18 earnings," Anita Gandhi, Whole Time Director at Arihant Capital Markets, told IANS.

Along with demonetisation and GST, other domestic cues like state elections and sectoral reforms kept the equity markets largely busy which had mitigated the impact of global volatility during the year.

"Global markets did not have a great influence on Indian markets in 2017 except for temporary swings in line with the mood elsewhere. Interest rate rise abroad has led to some slowing down of FIIs (foreign institutional investors) inflows," Deepak Jasani, Head, Retail Research, HDFC Securities, told IANS.

Provisional figures from the Securities and Exchange Board of India revealed that during the year, cash flows of FIIs were worth Rs 51,215 crore and of domestic institutional investors Rs 114,824 crore.

On the currency front, the Indian rupee performed well this year in comparison with its Asian peers -- appreciating by almost six per cent -- on the back of strong inflows into local equities.

The rupee appreciated by 5.99 per cent to close at 63.87 to a dollar on December 29 compared to its last year's close at 67.94 per dollar.

On the BSE, all the sub-indices closed the year in green. The S&P BSE realty index was the top sectoral gainer despite implementation of Real Estate (Regulation and Development) Act, which edged higher by 105.42 per cent. The S&P BSE healthcare index gained the least with 0.30 per cent.

The top five gainers on the BSE were Tata Steel (up 87.84 per cent), Maruti Suzuki (up 80.92 per cent), Bharti Airtel (up 73.92 per cent), Reliance Industries (up 71.17 per cent) and Hindustan Unilever (up 64.27 per cent).

The top five losers were Tata Motors (DVR) (down 20.54 per cent), Dr Reddy's Laboratories (down 20.49 per cent), Coal India (down 12.35 per cent), Tata Motors (down 11.23 per cent) and Sun Pharma (down 9.82 per cent).

Highlights:

• Sensex gained 28 per cent, scaled 52-week high of 34,137.97 points

• Nifty gained 29 per cent, scaled 52-week high of 10,552.40 points

• BSE mid-cap index gained by over 47 per cent, small-cap index over 58 per cent

• On November 1 -- Sensex, Nifty witnessed steepest rise

• On September 22 -- Sensex, Nifty witnessed sharpest fall

• Tata Steel was the best performing Sensex stock

• Tata Motors (DVR) was the worst performing Sensex stock

• Realty was the best performing sectoral index

• Healthcare was the worst performing sectoral index

• Indian rupee gained nearly 6 per cent

  (Porisma P. Gogoi can be contacted at porisma.g@ians.in and Rohit Vaid at rohit.v@ians.in)