MUMBAI: The equity markets signed-off 2017 on an impressive note posting their biggest yearly gains in last three years with the small- and mid-cap stocks outperforming their large cap peers by huge margins. The strong rally in equities saw investors wealth zoom by a whooping Rs 45.50 lakh crore in a single year.
While the markets are expected to carry forward their bullish momentum into 2018, experts are little sceptical on the markets’ ability to deliver the kind of returns generated in 2017 due to overstretched valuations.
The BSE small- and mid-cap index have soared 59.64 per cent and 48.13 per cent respectively when compared to the 27.90 per cent and 28.64 per cent gains posted by the Sensex and Nifty. “We have to see 2018 in the backdrop of market performance in 2017, which has been phenomenal in terms of returns. We have seen the corporate earnings reverse its trend from Q2FY18 onwards and the second half of the year is expected to continue the direction amidst improving consumption-led demand on the back of good monsoon in 2017. We expect markets to do well as the corporate earnings are likely to improve going forward, but given the spectacular returns in 2017, we should temper our expectations for 2018,” said Arun Thukral, MD & CEO, Axis Securities.
On Friday, the Sensex closed at 34,056.83, up 208.80 points or 0.62 per cent from its previous close while the Nifty surged 52.80 points or 0.50 per cent to end the day at 10,530.70. According to experts, it was domestic institutional investors led by mutual funds, which drove the markets to a record high. The mutual fund industry pumped in Rs 1.16 lakh crore in equities, their biggest annual investment till date. This is more than double the investment made by foreign portfolio investors (FPIs) at Rs 51,253.47 crore.
“Undoubtedly, 2017 belonged to mighty bulls as we saw massive wealth creation right from the word go. If we look the markets with a longer perspective, then there is no second thought about the continuation of this bull run towards 11,000 and beyond for the NSE Nifty. But, we do not expect the journey to be as smooth as it has been throughout this year. In between we are likely to see decent pauses and hence, one needs to be prepared for it,” said Sameet Chavan, derivative analyst at Angel Broking.
However, Atul Kumar, head of equity funds at Quantum AMC expressed concerns regarding stretched valuations. “Most of the back ended recovery in profits is already reflected in current stock prices. Sensex PE ratio continues to trade above its historical average. There are few sectors and stocks, which look to be priced sensibly for investor to make meaningful returns. High level of liquidity globally due to loose monetary policy by central banks has distorted prices across most asset classes. The situation can change in future as few central banks are raising rates while some others are reducing the size of economic stimulus,” he added.
