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Stocks shrug off demonetization woes, soar in first half

LiveMint logoLiveMint 03-07-2017 Nasrin Sultana

Indian stocks have risen more than 16% in the six months ended 30 June, the biggest gain in three years, even as many companies are still struggling to recover from the government’s shock demonetization move in November. Driven by a rush of liquidity, euphoria on economic reforms and low interest rates, both benchmark indices gained in the first half of 2017. However, corporate earnings growth has not kept pace with rising valuations and a revival in private capital expenditure is still not in sight.

Though most experts say the markets will rise in the second half of the year, a lot will depend on a recovery in earnings growth as valuations are already high. In addition, the implementation of the goods and services tax (GST) may disrupt the system in the short term because of inventory pile-ups, reconciliation of stock-in-trade and adjustment to the new taxation norms.

Graphics: Ahmed Raza Khan/Mint

In the six months to June, the Sensex climbed 16.13% and the Nifty rose 16.31%, as against 3.3% and 4.3%, respectively, in the previous year. Broader markets outperformed, with the BSE Midcap index rising 21.7% and the BSE Smallcap index rising 27.9% in the first half of 2017. Foreign institutional investors invested heavily in India, buying around $8.4 billion worth of stocks in the six months ended 30 June, compared to $2.96 billion in the year earlier.

Reeling under H-1B visa and compliance issues in the US, technology and healthcare were the only sectors to underperform in first six months of this year. The BSE Healthcare index fell 3.65% and BSE IT index shed 3.3% in the period. In comparison, BSE Healthcare fell 8.35% and BSE IT rose 1.25% in January-June 2016. The BSE Auto index and the BSE Bankex rallied 15.6% and 26.6%, respectively, while the BSE Realty index jumped 61.7% in the first half of 2017. BSE Consumer Durables rose 42.5%.

Emerging markets outperformed in the first half of 2017. The MSCI Emerging Markets index surged 17.5% in January-June after gaining 5% in the same period last year. MSCI India rose 13.5%, outperforming MSCI World’s 9.6% gain during the period.

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