The markets closed for the week on a subdued note. Sensex closed at 25,838.71 points and Nifty closed at 7,891. An important event for the week was the spectacular listing of the new issues Alkem Lab and Dr Lal Path Labs. Alkem closed on the day of listing with a premium of 31.56% to the issue price and Dr Path Labs closed with a premium of 49.84%. Both issues gave good returns to investors. The success of these two issues along with the phenomenal success of others like InterGlobe Aviation, VRL Logistics etc. mark the return of buoyancy in the primary market. This, along with the high domestic institutional investors (DII) inflows into the market this year and the sustained buoyancy in SIPs augur well for the capital market, going forward.
Another important development was the release of the latest Financial Stability Report by the RBI. The report highlights the weak corporate sector balance sheets and its implications for the financial system in particular and the economy in general. Corporates in the energy and metals space are in a difficult environment. Meanwhile, the Winter Session of Parliament ended without the passage of the GST Bill. This came as a disappointment to the market.
The Sensex and Nifty are around 6% down for the year so far. The mid and small caps have done better. For the Sensex 100, as per latest calculation, the earnings are flat for the year. This explains the poor performance of the BSE 100. Going forward, the situation is likely to improve.
Global growth is expected to improve to 3.3% during 2016 from 3.1 % in 2015. The return of the US economy to the path of reasonably good growth and the return of stability in Europe are expected to aid global growth in spite of the slowdown in China.
The Indian economy is expected to improve its performance from around 7.5 % in FY 2016 to around 8 % in FY 2017. Macro stability in the economy can prepare the ground for sustainable growth in the coming years.
Though the market performance has been disappointing this year, investors should appreciate the fact that India’s economic performance is much better compared to the most other emerging markets that are reeling from commodity crash. The Rupee has been one of the stable currencies in the EM universe and India’s GDP growth for FY 2016 is likely to be the best in the world this year.
A weak spot for the economy this year has been the poor rural spending due to the second consecutive poor monsoon. Since we never had three consecutive poor monsoons so far, one can expect a rebound in the rural economy next year. Sustained public investment in roads, railways and defence, thanks to the buoyancy in indirect tax revenues, is slowly paving the way for revival of demand and private capex cycle. This augurs well for GDP growth and corporate earnings during 2016. Investors will benefit from this.
(The writer is an investment strategist, Geojit BNP Paribas)