After an overwhelming show in FY24, domestic equities look poised to kickstart the new financial year on a good note and test new highs, as capital flows remain buoyant and the underlying factors conducive for the bulls to keep their foot ahead of the bears on Dalal Street.

Benchmark Nifty50 bid goodbye to FY24 after clocking in 27% gains and the market saw

over Rs 4 lakh crore of money being bet by foreign and domestic institutional investors. This was backed by the promising India story amid strong macro factors and continued capital investments.

So, the overall outlook for equities remains positive for April, but there are a few crucial
events that will decide the sustainability of the momentum.

EVENTS TO WATCH

The Reserve Bank of India will announce its monetary policy decision on Friday and its own assessment of the current economic conditions, both in India and globally. It will be important to hear out Governor Shaktikanta Das after the US Federal Reserve retained its guidance of three rate cuts in 2024.

On Friday, the US will release its unemployment report for March, which will also be closely tracked by investors across the globe.

Next week, the earnings season will kickstart and all eyes will be on the performance scorecard of India Inc in the last quarter of FY24.

Two years of double-digit earnings growth has been one of the major factors driving markets to all-time highs, and expectations are that we could see another year of double-digit growth in FY25.

“At near-to-all-time highs, that is a truism that any earnings miss leads to a much sharper correction. So, we are priced to perfection or maybe ahead of perfection, but we are expecting

a pretty good earnings season,” said market expert Ajay Bagga, who expects automobiles, industrials, and capital goods sectors to shine.

The next major domestic event is the general elections as voting will begin from April 19. Alongside, assembly polls will be held in Andhra Pradesh, Arunachal Pradesh, Odisha, and Sikkim. Besides, by-elections are being held in the states of Bihar, Gujarat, Haryana, Jharkhand, Uttar Pradesh, Karnataka, Tamil Nadu and Tripura.

HOW MARKETS HISTORICALLY FARED IN APRIL

If one looks at the historical performance, then seasonality factors have favoured the bulls in April on Dalal Street.

In the last 10 years, the Nifty 50 has closed in the green on six occasions, with an average return of 2.3%.

Interestingly, even the broader market has exhibited strong positive seasonality, with the Nifty Midcap index closing in the green on eight occasions in the last 10 years with an average return of 3.7%. In fact, the index has outperformed Nifty 50 on nine instances with an average outperformance of 1.4%, noted JM Financial.

However, in the last one month, the midcap index has underperformed the benchmark due to selling pressure amid concerns over frothy valuations.

One needs to see if the index can rebound and repeat its outperformance this time as well.

FLOW SHOW

Given that most factors remain conducive, foreign capital flows are widely expected to

continue this month as well as in FY25.

“India is one of the rare large economies with double-digit nominal GDP growth, double-digit corporate earnings growth, and double-digit RoE. We expect FPI flows to remain strong and would expect them to resume increasing their stake in Indian markets,” said Alok Agarwal,

head quant & portfolio manager at Alchemy Capital Management.

The rising participation of retail investors has played a crucial role in shielding the domestic market from any steep correction. Rising retail participation and domestic institutional inflows have offset any outflows from FPIs, and experts see this trend continuing.

If we look at the historical trend of FII and DII behaviour in April, it’s been quite favourable. In the last 10 years, both FPIs and DIIs were net buyers on six instances.

With the overall market set-up looking positive, Sanjiv Bhasin of IIFL Securities is expecting good action in largecaps and has ONGC and HDFC Bank as his top picks.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)