Benchmarks to make tepid gains in 2022; Sensex to reach 62k by December next year: HDFC Securities

Sensex closing at 62,000 by December means the index will be marginally above its all-time closing peak of 61,765.59 scaled on October 18 this year, while the Nifty too finished at a record 18,477.05.

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The fast emerging Omicron variant of COVID-19 has been roiling the markets this month

Citing the already stretched valuations of the domestic market, brokerage HDFC Securities is expecting the indices to make tepid gains in 2022, growing in low single digits, and sees the Sensex at around 62,000 and the Nifty at 18,500-19,000 by December next year.

The domestic market has for long been trading at a price-to-earnings premium of 21 per cent over global equities and 72 per cent over the emerging markets peers now, making it the most expensive large market. The fast emerging Omicron variant of COVID-19 has been roiling the markets this month. Foreign funds, which own over a quarter of the market and the main driver till recently, have been on the back-foot, pulling out Rs 17,700 crore so far in December.

Pencilling in a tepid market growth in 2022 given the already stretched valuations and record high premium, HDFC Securities managing director and chief executive Dhiraj Relli told PTI that he expects only 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 to the likely support the market may get from IT, pharma, FMCG and consumer-oriented online companies.

Sensex closing at 62,000 by December means the index will be marginally above its all-time closing peak of 61,765.59 scaled on October 18 this year, while the Nifty too finished at a record 18,477.05.

But since then, it has been a choppy ride for the markets as foreign investors have been dumping stocks like hot coal.

Foreign portfolio investors have pulled out Rs 17,696 crore till December 17 amid uncertainty due to the new the Omicron strain, and announcement of faster tapering by the US Federal Reserve. In November too they were net sellers to the tune of Rs 2,521 crore.

However, Relli is very bullish about the long-term prospects of the markets as the recent rally has been driven by retail investors and domestic funds, as a result of the rising financialisation of savings.

The market is on the cusp of an exponential growth, Relli said, attributing his optimism to the growing ‘China plus One’ strategy under which the country is likely to benefit.

He also feels the first half of the market movement will be led by the Budget-focused stocks and the second half by defensives.

He expects stocks in the low cost discretionary spends segments like cinemas, eating out and travel to gain in the long-run.

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 new customer addition bus since the pandemic for want of online demat account opening facility and on-boarding of only parent HDFC Bank customers, is looking to add at least 2 lakh new customers every month till March and continue to grow the topline by 20-25 per cent over the next five years.

It has been adding 1.5 lakh customers since it began on-boarding non-HDFC Bank customers and upgraded its tech capabilities since this June. As a result, its customer base has crossed 3.7 million now, up from 2.7 million in March 2021 and 2.4 million in March 2020.

But this is still way below is new-age peers like Zerodha, Upstox, and Angel One, among others, who offer discount broking services. Since the pandemic began, the total investor base has more than doubled to over 90 million, going by the latest BSE data.

Relli said almost 80 per cent of his new customers are under 35 years and of the total new additions, almost 40 per cent are women, compared to only around 25 per cent earlier.

A key feature of HDFC Securities’ offering is that it is the only brokerage that offers margin facility for as long as 275 trading days — the highest in the industry, and it earns over 25 per cent of its total income from interest income on such margin funding.

Unlike most of its peers, Relli said, the broking house earns 80 per cent of its trading income from equities and the rest from derivatives, while for the industry in general it is around 50 per cent and 60-75 per cent for discount brokers.

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