Samvat 2077 rewind: Nifty50 rallied 40% as banks made a big comeback

Broader markets boosted investors' sentiment in a big way. The Nifty Midcap 100 index surged 70 percent during the year to Diwali 2021, and its smallcap counterpart spiked 44.4 percent. Surplus liquidity, low-interest rates and corporate earnings were the key themes in the year gone by, as businesses endured against the coronavirus pandemic.

Here are some key factors behind the phenomenal returns in the year-gone by:

--Liquidity aplenty on account of pandemic-era stimulus, low-interest rates

--Upbeat corporate earnings

--Demand recovery

--Retail investor participation

The improving pace of COVID-19 vaccinations around the globe kept investors upbeat. Besides, optimism on a quicker-than-expected recovery continued to boost investors' sentiment, as the focus shifted to technology and pharma from the traditional favourite, the banking space. Concerns over inflation and rising input costs capped the upside.

IT, metal, and metal shares were at the forefront of the rally. Among NSE's sectoral gauges, the realty index soared the most, ending Samvat 2077 with a 126 percent gain. The Nifty Realty index's performance was followed closely by the Nifty Metal (112 percent), Nifty PSU Bank (106 percent) and Consumer Durables (70 percent) gauges.

The banking pack make a big comeback this time around. The Bank Nifty index rose 38.4 percent between Diwali 2020 and Diwali 2021, following a decline of 3.2 percent in Samvat 2076. The Nifty IT index jumped 64 percent.

Market veteran Motilal Oswal, CEO and Managing Director of Motilal Oswal Financial Services, said the key themes in Samvat 2077 were high beta, cyclical and value stocks.

In the Nifty50 universe, as many as 46 stocks rose in the year to Diwali 2021, with seven actually more than doubling investors' money.

At the top among the seven was Tata Motors, giving a return of 231.5 percent during the year, followed by Tata Steel's 172.6 percent. Bajaj Finserv, SBI, Hindalco, Grasim and ONGC were next, rising between 110.8 percent and 141.1 percent.

"Fundamental support to the market rally has been from the steadily improving corporate results, which indicate a sharp turnaround in India Inc's performance, which in turn, has been aided by the cut in corporate tax and a steep decline in interest rate," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

ALSO READ: Raamdeo Agrawal says retail investor participation phenomenal

A notable feature of the rally, which has not seen a major correction so far, is the exuberant participation of retail investors. "Retail investors are the dominant players in the market now. We don't know how long this will last since valuations are stretched and many foreign brokerages have downgraded India on excessive valuations," he added.

ALSO READ: October FII outflow highest in 18 months; should D-Street investors be worried?

Most experts see modest returns in the coming year, the Samvat 2078, which begins on the day of Diwali, November 4, 2021.

Oswal expects the earnings growth to revive going forward in tandem with a pickup in the economic cycle. "Although there would be ups and downs in-between, we expect the overall trend of the market to remain positive in Samvat 2078 as well," he said.

In the coming year, some of the themes expected to play out include technology, travel, tourism, leisure, QSR, real estate, and ancillaries like cement and other building material companies. "Stock selection was the key in generating returns within the midcap space during Samvat 2077, a trend which we believe could continue going ahead as well," he said.

"It would be safe to remain invested in high-quality stocks in performing sectors like private sector banking, leading names in the mortgage, fintech and financial services, and IT- and construction-related sectors," Vijayakumar added.