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Here’s what December looks like for Indian equities

Data for the last 22 years for December shows that the Nifty has delivered positive returns for investors on 16 occasions — 73 percent of the time — and has generated 2.9 percent average returns during the month over the past 22 years.

November 30, 2022 / 09:57 AM IST
 
 
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Indian indices created new all-time highs during the past two trading sessions as ‘bulls’ appeared to consolidate their position in the driver’s seat. As we near the end of 2022 and enter the last month of the year, the strong prevailing momentum is likely to continue and the markets will make a strong entry into the new year, 2023.

Stable macros

Over the last few weeks the markets have entered a stage of stabilisation as global and domestic concerns have now started easing, and this has helped reduce volatility and recoup losses. The biggest factor in favour of equity markets is the softening of inflation in both the US and India. Moreover, with the likelihood of crude and other commodity prices remaining soft, the problem of inflation is not likely to weigh that heavily on the global economy now.

“US inflation has been coming down for four consecutive months and will ease further due to softening crude prices, which means the worst of the tightening cycle is behind us and should be a big positive trigger for the markets,” said Manish Jain, Fund Manager, Coffee Can PMS, Ambit Asset Management.

Other global cues also look very strong as the US Bond Yield on a 10-year basis is now at 3.66 percent as compared to the peak of 4.34 percent, which is very supportive for domestic markets.

“China reporting new Covid cases is a concern and its impact on the supply chain is doing the rounds but the Indian markets have fought through all the odds — FIIs selling, higher interest rates, the Russia-Ukraine war, insane inflation, etc — and still managed to scale all-time highs. Hence, we remain positive on the Nifty,” said Raj Vyas, Portfolio Manager, Teji Mandi.

Also, domestic demand continues to remain strong and that’s visible in the accelerating credit growth in the economy. So, overall most concerns have now been priced in, which should add to the prevailing momentum.

What to expect in December

“Despite global uncertainties, the softening of commodity prices (especially crude oil), along with strong retail inflows would help sustain momentum in Indian equity markets in the near term. And we would not be surprised if activity in the broader market improves considerably in December and the beaten-down high beta stocks outperform in the near term,” said Gaurav Dua, Head, Capital Market Strategy, Sharekhan by BNP Paribas.

Data for the last 22 years for December shows that the Nifty has delivered positive returns for investors on 16 occasions — 73 percent of the time — and has generated 2.9 percent average returns during the month over the past 22 years.

nifty performance2

According to Vyas of Teji Mandi, “The month of December is a five-week series and historically, five-week series have seen some volatility in the first two weeks. But this time, things look a bit different as this December series started on a very heavy note with 82 percent rollover in Nifty and FII long positions at 77 percent, the highest since June 2021. And whenever FIIs start a new series with >70 percent, the Nifty has managed to end in the green.” Also, at around 13.5, the India VIX volatility index is providing comfort to bulls.

Broader Markets likely to gain momentum

Like Dua of Sharekhan by BNP Paribas, other experts believe the broader indices are set to bounce back. Despite the rally and indices scaling new highs, the broader indices have lagged in performance and this is likely to change in December.

“This rally to new highs hasn’t bought cheer among investors as the broader market hasn't performed on similar lines, and many indices are below their 52-week or lifetime highs,” said Gopal Kavalireddi, Head of Research at online brokerage FYERS. “The expectations are for the Nifty to scale the 19,000 mark and consolidate for some time, while the broader indices take the lead and move up to their all-time highs.”

At the same time, Nishit Master, Portfolio Manager, Axis Securities PMS, also expects the broader indices to outperform the Nifty in December. He is more bullish on small and midcaps as compared to large caps for the month.

Triggers for market movement

The factors/triggers that will keep investors busy in December are the RBI Policy Meet between December 5 and 7, the inflation trajectory, the US Federal Open Market Committee (FOMC) meeting on December 14, the Fed Speech post the inflation and FOMC outcome, and the impact of likely muted institutional volumes on account of the new year holiday season.

The softening of commodity prices (including crude oil) is sentimentally positive for Indian equity markets. Strong retail flows, to the tune of close to Rs 13,000 crore in monthly SIPs, along with easing of FII selling pressure, will support equity markets.

Also, inflation pressure is showing signs of easing, and this will help the upward momentum in equities continue into December.

According to Kavalireddi of FYERS, “The leading and outperforming sectors of the last couple of months — the PSU basket, defence, and financials — could face profit booking and consolidation before fresh triggers from the Union Budget 2023 make way for an upmove or a down move”.

Sectors and stocks to focus upon

Data for sectors and indices over the last ten years indicates that December could be a good month for traders and investors alike in terms of returns.

nifty performance

“The recent sectoral trends indicate strong positivity in IT, metals, capital goods, industrials and consumer discretionary (goods), while mid and small-cap companies are due for a catch-up with the benchmark indices and possibly offer better returns than large-cap companies,” added Kavalireddi of FYERS.

With a decent correction in input prices of raw materials and sustaining price hikes, experts expect the FMCG sector will deliver better sales and considerable margin improvement.

“The ongoing festive and wedding season is on track to benefit consumer discretionary companies and service providers,” said Kavalireddi. Hotels, travel, logistics, jewellery, food, clothing and beverages companies will be the largest beneficiaries.

“We believe the RBI will continue its policy tightening with another 25-35bps repo rate hike in December,” said Axis Securities PMS’s Master. A rising interest rate environment is positive for banks, especially those with a strong CASA base. “We like names like SBI, Bank of Baroda, ICICI Bank, RBL Bank, etc,” he added.

Also, with excellent order inflows and strong order books, companies such as HAL, Bharat Dynamics Ltd, Cummins India, Siemens India, Garden Reach Shipbuilders & Engineers, Voltamp Transformers, etc. from the capital goods and defence sectors offer substantial opportunities for investment, say experts.

Cement stocks could see some movement as the cost of production is likely to fall and realisation is expected to rise. Experts believe margins for cement companies have bottomed out, and there is a possibility of a short-term move there.

Disclaimer: The views and investment tips of investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 

Gaurav Sharma
first published: Nov 30, 2022 09:57 am

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