Citing already strained domestic market valuations, brokerage firm HDFC Securities expects indices to make modest gains in 2022, with single-digit growth, and sees Sensex at around 62,000 and Nifty at 18. 500 to 19,000 by December of next year.
The domestic market has long traded at a price / earnings premium of 21% over global equities and 72% over its emerging market peers, making it the most expensive large market. The rapidly emerging Omicron variant of COVID-19 has shaken the markets this month. Foreign funds, which hold more than a quarter of the market and the main driver until recently, have been on the decline, withdrawing Rs 17,700 crore so far in December.
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Thinking of lukewarm market growth in 2022 given already stretched valuations and the record high premium, HDFC Securities Managing Director and Managing Director Dhiraj Relli told PTI he only expected a Single-digit growth for the Sensex, expecting it to close at around 62,000 and for the Nifty at 18,500-19,000 by December 2022.
He based his limited optimism on the likely support the market could get from consumer-focused IT, pharmaceutical, consumer and online companies.
Sensex closing at 62,000 in December means the index will be slightly above its all-time close high of 61,765.59 set on October 18 of this year, while the Nifty also finished at a record high of 18,477, 05.
But since then the race has been heated for the markets as foreign investors have gutted stocks like coal.
Foreign portfolio investors withdrew Rs 17,696 crore through December 17 amid uncertainty over the new Omicron strain and the announcement of a faster cut from the US Federal Reserve. Also in November, they were net sellers to the tune of Rs 2,521 crore.
However, Relli is very optimistic about the long-term outlook for the markets, as the recent rally was driven by retail investors and domestic funds, due to the increasing financialization of savings.
The market is on the verge of exponential growth, Relli said, attributing his optimism to the growing “China plus one” strategy that the country is likely to benefit from.
He also believes that the first half of the market movement will be led by budget-oriented stocks and the second half by defenses.
He expects stocks in low-cost discretionary spending segments like movie theaters, restaurants and travel to gain in the long term.
On the IPO frenzy, he warned investors to be selective as some promoters are too greedy, adding that retail investors in particular should not follow the herd mentality.
HDFC Securities, which has missed the bus to add new clients since the pandemic for lack of ease of opening a mat account online and integrating only HDFC Bank parent clients, is seeking to add at least 2 lakh of new clients each months until March and continues to grow sales by 20-25% over the next five years.
It has added 1.5 lakh of clients since it started onboarding non-HDFC Bank clients and has upgraded its technology capabilities since June. As a result, its customer base has surpassed 3.7 million now, up from 2.7 million in March 2021 and 2.4 million in March 2020.
But it’s still well below new age peers like Zerodha, Upstox, and Angel One, among others, which offer brokerage services at a discount. Since the start of the pandemic, the total investor base has more than doubled to more than 90 million, according to the latest BSE data.
Relli said nearly 80 percent of its new customers are under 35, and of the total new additions, almost 40 percent are women, up from just about 25 percent previously.
A key feature of HDFC Securities’ offering is that it is the only brokerage that offers a margin facility as long as 275 trading days – the highest in the industry, and that it pulls over 25 percent of its total income from interest income on these margin financing.
Unlike most of its peers, Relli said, the brokerage makes 80 percent of its income from trading stocks and the rest from derivatives, while for the industry in general it’s around 50 percent. percent and 60 to 75 percent for discount brokers.