Investor Wealth Rose by Rs 40 Lakh Crore in H1. Will Sensex, Nifty Momentum Continue in H2?

The path for the benchmark stock indices in the second half of 2021 will be determined by factors such as a possible third wave of the pandemic, the stance of central banks in India and the US, the government’s privatisation programme and even a resolution to retrospective-taxation cases.

India’s stock market witnessed a stellar rally in the first half of 2021, with both the key indices, the S&P BSE Sensex and the Nifty 50, hitting record highs and lifting investor wealth by about Rs 40 lakh crore.

The Sensex and the Nifty 50 rallied by about 10 percent and 12.4 percent, respectively. The average market capitalisation of BSE-listed companies rose to Rs 229 lakh crore on June 30 and Rs 233 lakh crore on July 14 from Rs 188 lakh crore on December 31, 2021.

The Sensex hit a fresh high of 53,266.12 on July 15, while the Nifty 50 also rose to a record 15,952.35. Anecdotal data suggests that bulls remained in control of D-Street in the second half of the year in at least seven of the past 10 years.

Although most analysts do not see a repeat of what happened in 2020, when the Nifty 50 rallied 35 percent in the second half, the upward trend is likely to continue. There could be more stock-specific action and given that the indices are near record highs, some consolidation cannot be ruled out.

“The trend has been very erratic for the last 10 years of Nifty 50. Markets go up in sudden moves and stay down for slightly longer periods,” said Anuj Jain, cofounder and senior research head at Green Portfolio. “There is still undervaluation in the larger mid-cap and small-cap space. Further, the market or the Nifty 50 Index still has a long way to go in light of the new realm post-COVID.”

Jain added that the Nifty 50 does not fully represent the performance of the stock markets or the economy.

“It has the largest capital weighted companies on its index in India. The performance of the larger market, namely BSE MidCap and BSE SmallCap, has been different,” he said.

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Things To Watch Out For:

A potential third COVID-19 wave, commodity prices, earnings impact, hawkish comments from the US Federal Reserve, foreign investors and the Reserve Bank of India’s commentary on future interest rates are some of the factors that will determine the market momentum in second half of 2021.

“Just because 70 percent of the time the second half was good does not mean it will be the same this year. Even though the speed of vaccination has eased in July, the government looks determined to vaccinate half the population (at least one dose) in the next three months,” said Bhushan Mahajan, chairman and managing director at Arthbodh Shares & Investments. “The green shoots in the real estate sector should be watched. The government’s stand on the retrospective taxation cases, Cairn Energy and Vodafone, will be keenly watched. If steps are taken to resolve the disputes and show a reconciliatory attitude, foreign investor sentiment will be very positive.”

Jain of Green Portfolio said the key events to watch out for could be the third wave of the pandemic, if it comes, and its impact. Also, how early Europe, specifically the UK, will get back to normalcy. The US looks more or less back to normal.

“In India specifically, the privatisation exercise and its result is a critical event. Also, responses to various production-linked incentive schemes that are yet to come and the ground-level investments,” he said.

Sectors to watch:

Experts expect recovery plays in sectors such as realty, banks, financials, travel, FMCG as well as metals. The broader market, which was an outperformer in H1, will continue to outperform in H2, they suggested.

“As global economies are gradually opening up and with the fast pace of vaccination programmes across the globe, the equity market ride for the balance of the year is expected to be smooth and rewarding,” said Sandeep Matta, founder of TRADEIT Investment Advisor. “Historically, the Indian benchmark indices have most of the time outperformed the H1 performance. Banks and financials, FMCG and the metal sectors are expected to be the key sectors to drive the bull run, while the pharma sector may take a back seat in the second half.”

Matta added that the mid- and small-cap segments generally outperform the overall market during H2.

Mahajan of Arthbodh Shares is betting on consumer, travel and tourism as well as the auto and real estate sectors.

“Travel and tourism sector will be the first to bounce back as the economy opens. The visa fee waiver for foreign tourists may be helpful. The second sector will be real estate and financials,” he said.

Mahajan said the consumer durables sector is already looking up. Cement and steel may continue to attract further investments if real estate and infrastructure recover.

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