86726In view of reduced inflation and expenses, will it be right to invest in IT stocks?

The domestic equity market has been one of the best-performing markets in the ongoing calendar year with a gain of nearly 25% on a year-to-date basis. It has deftly climbed the wall of worry be it be the second Covid-19 in the country in April-May 2021 or the third wave expectations during August-September 2021. This was due to a confluence of fundamental factors. According to ICICI Securities, equity as an asset class is being widely and rightly recognised as an asset generating inflation-beating returns or real returns over a long period of time and is indeed very much liquid in nature. The (there is no alternative) factor is at play.

With the increase in the pace of digitisation, a set of efficiencies have crept into organisations as well as the economy, indicating better corporate earnings or GDP growth. New age technology platforms have also increased the reach of equities with a record number of demat accounts being opened over the last 18 months, indicating enhanced retail participation. Going ahead, ICICI Securities believe that the ongoing rally on D-Street will continue in FY23 also. The brokerage house projected that BSE Sensex can hit 66,600, while NSE Nifty may touch the psychologically important level of 20,000-mark going ahead.

Apart from the above fundamental drivers, ICICI Securities lists six pointers which may support the Indian equity markets going ahead.

Higher pace of vaccination: As of date, domestically India has administered around 89 crore vaccine doses (nearly 69% of the eligible population vaccinated with the first dose, 25% of the eligible population fully vaccinated) and is on track to administer around 200 crore doses by 2021 end. With a large part of the population slated to be vaccinated by December 2021, expectations are rife for a sooner than expected economic recovery.

Government policies: Pro-growth policy action by the government like expediting work on Delhi-Mumbai expressway, PLI scheme for new technologies in the auto space and interim cash flow relief measures in the telecom space.

National Asset Monetisation Pipeline: National Asset Monetisation Pipeline (Rs 6 lakh crore in FY22-25), as well as robust tax collection in H1FY22 (up to September 22, 2021), give much needed financial muscle to the government to expedite spend on capex and infrastructure that has a ripple effect on the economy.

Record registration: Real estate space pullback with record registrations in some cities like Mumbai for September 2021 with residential housing prices starting to move northwards in some states.

Maturity of Indian capital markets with start-up unicorns getting listed, thereby expanding market valuations at the blended level.

Earnings: Corporate earnings have been nearly stagnant in the recent past with FY19-21 Nifty earnings CAGR at 5%. At present, India Inc is at the cusp of a high double-digit growth trajectory with earnings CAGR over FY21-23E at around 26%, the key driver for markets to inch higher.