Indices may remain steady, deliver 5-6% return in six months

Indian stock markets were a little volatile during the last week on the back of guidance by the US Fed Reserve chief Jerome H. Powell in regard to easing of tapering in asset purchases. The American central bank had brought in a gigantic liquidity programme to support their economy and this loose economic monetary policy had propped up emerging stock markets around the world, including India. Any talk or inclination of “taper tantrum” or cut in bond purchases, also known as Quantitative Easing, by the US Fed makes the stock market shake in its knees. Plus, a recent report by Moody’s stating that Indian banks were susceptible to increased asset risks due to the resurgence of the second wave of the corona virus pandemic caused Indian banking stocks to trend lower.
Dampening economic performance amid the spread of the Delta variant of the Covid-19 virus is also causing volatility in the stock markets around the world. But both indices, Nifty and the Sensex shrugged off all these worries and hit new historic highs last week. There was broad based buying seen in pharmaceutical, capital goods, consumer durables, IT and metal stocks recording stellar gains. Overseas investors have been selling stocks for most part of last week to the tune of nearly Rs 5,300 crore on the back of likelihood of a sooner than expected reversal of the US stimulus programme which has pumped in billions of dollars in the Indian stock markets. On the other hand, local domestic institutions and funds flush mutual funds have been buying large cap companies helping the indices appreciate and remain at elevated levels. Hence, the BSE Sensex closed last week at 56124 levels while the other benchmark index , the NSE Nifty settled at 16705 record levels . With the markets were scaling new highs , Indian investors have been investing aggressively in New Fund Offers or NFOs of various mutual fund schemes at initial Rs 10 par subscription levels . They expect these funds to deliver better returns over the next one year period and more than the current prevailing bank fixed deposit rates.
Incidentally, the recently concluded NFO of SBI Balanced Advantage Fund collected a whopping Rs 14,000 crore in its initial period of subscription of around two weeks. Analysts expect that all these funds collected by various mutual funds to be deployed over the next few months in a staggered manner. Currently, they are investing in select large cap company stocks which are so called under-valued and that’s why you are seeing the indices gaining ground on a daily basis. On the other hand, mid- and small caps have taken a terrible beating in the month of August. Analysts expect the stock market to remain in an upward trajectory with a positive bias on the back of steady monthly inflow of SIP money and recently accumulated record mutual funds subscriptions from retail and HNI investors. Fund managers and equity analysts expect the indices to remain steady and deliver a 5-6% absolute return over the next six months’ time frame.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.