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Dalal Street bets Samvat 2073 will be better than last year

The concern that ECB may unwind its easy monetary policy and potential supply limits by oil producing countries could contribute to market volatility.

, ET Bureau|
Updated: Nov 01, 2016, 07.58 AM IST
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Global factors such as the US election, tightening of monetary policy by the US Federal Reserve, beginning of the Brexit process and overall subdued global economic growth will lead to bouts of volatility.
Global factors such as the US election, tightening of monetary policy by the US Federal Reserve, beginning of the Brexit process and overall subdued global economic growth will lead to bouts of volatility.
Mumbai: Notwithstanding a soft beginning, Dalal Street is betting Samvat 2073 would be better than the last year amid expectation that domestic interest rates are likely to be lowered further, and that earnings as well as the domestic economy will recover. However, the ride upwards will not be smooth, said fund managers and market strategists.

Global factors such as the US election, tightening of monetary policy by the US Federal Reserve, beginning of the Brexit process and overall subdued global economic growth will lead to bouts of volatility.

“In the year ahead there are a lot of events which could lead volatility being higher than the last 12 months though remain optimistic with respect to overall returns and earnings recovery," said Rajesh Cheruvu, head of equity , Sanctum Wealth Management.

The concern that ECB may unwind its easy monetary policy and potential supply limits by oil producing countries could also contribute to market volatility, said Cheruvu.

The Hindu calendar year Sam vat 2073 began on Sunday on a soft note, with indices ending marginally in the red on caution ahead of the two-day Fed meeting that begins Tuesday and the US elections on November 8. The Sensex ended down 11.30 points or 0.04% at 27930.21 and the Nifty ended 12.30 points or 0.1% lower at 8625.70, their first negative Muhurat trading day closing since 2012.

The immediate event risk to market will be on November 8 when the outcome of the US Pre sidential election is announced rather than the Fed's two-day meeting beginning Tuesday as the central bank is not expected to raise rates at this meeting.

“If Trump wins, then it will put markets into an uncertain mode,“ said Piyush Garg, CIO, ICICI Securities.

Back home, elections in Uttar Pradesh and implementation of the GST will be keenly watched in 2017. Many fund managers said recovery in earnings will be more vital to sustain current va luations, which are considered rich. Nifty is currently trading at 18.8 times one year forward earnings, while most other emerging markets are at around 12-13 times Bloomberg data showed.

“Nominal GDP is likely to rise and overall consumption will improve. These factors will lead to a delta change in earnings and they will grow in mid-teens at least if not better even as valuations remain around current levels. This should help returns in the new year to be better than last year,“ said Mahesh Patil, co-CIO, Birla Sunlife Mutual Fund.

Navneet Munot, CIO, SBI Mutual Fund echoed Patil's view. “For the next leap in the markets, a strong earnings growth is imperative. Markets are expecting a 15% earnings growth in FY18,“ said Munot.

Among sectors, the winners of Samvat 2072-private banks, consumer discretionary and automobile companies-are likely to continue their positive run in the new year. Pharmaceutical sector could regain its lost charm this year, fund managers said.

“Pharma, after a year of being laggards, should see stability as FDA issues are getting resolved and can see 18-20% earnings growth,“ said Patil. In Samvat 2072, Nifty Pharma index fell 1%.

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