'Disciplined Investment Will Fetch Decent Returns in 2016'

Published: 03rd January 2016 04:03 AM  |   Last Updated: 03rd January 2016 04:03 AM   |  A+A-

Sensex and Nifty closed at 26,117.54 and 7,946.35 respectively on the final day of the year goneby.  Sensex lost 5% and Nifty lost 4% for the year. Therefore, from the benchmark indices perspective, 2015 was a disappointing year. But this is only part of the story. The performance of the indices was impacted by the steep fall in some metals and frontline banking stocks. The performance of the broader market has been much better. While the S&P BSE 500 declined by 1% in 2015, more than half of the BSE 500 gave positive returns. More importantly, 70 stocks in BSE 500 gave more than 50% return. Many mutual funds, particularly mid-cap funds, have reported good returns.

outlook.JPGFrom the sectoral perspective, Nifty Media led last year with a gain of 10.4% followed by Nifty Pharma, which posted annual gain of 9.2%. The worst performer was the Nifty PSU Bank with a loss of 32.9% followed by Nifty Metals, which reported loss of 31.4%.

Also, in relative terms equity has done better. Gold posted negative return for the third consecutive year. Real estate return, though largely location specific, also has been poor for three years now. Fixed income and tax-free bonds have done better.

Market performance in 2015 was impacted by many external and internal headwinds: Externally, the Chinese slowdown and Yuan devaluation impacted global financial markets. The commodity crash severely impacted commodity exporters and global trade. Global GDP growth was muted in 2015 at 3.1%. Internally, the second consecutive poor monsoon impacted agriculture and rural spending. Excess capacity in many industries constrained private capex. Reforms like the passage of the GST Bill did not go through.

What is the outlook for 2016?

A major concern for 2016 is: how the Chinese economy will behave? Slowdown in China is expected and discounted by the markets, but not a Chinese hard landing and further devaluation of the Yuan. If the latter happens, that will rattle markets. If it is a gradual slowdown, the global economy will recover aided by the US growth and European stability.

The Indian economy is likely to clock a GDP growth rate of around 7.4% in FY2016, making India the fastest growing economy in the world. India’s growth rate is likely to accelerate in FY2017. Corporate earnings growth, which has been poor in 2015, is likely to pick up to mid teens in FY 2017. This should aid market recovery. Our base case scenario is around 15% returns in 2016.

From the sectoral perspective, pharma will continue to do well and IT is likely to post modest returns. Private sector banking will bounce back and domestic cyclicals are likely to report smart recovery. Companies in areas like road construction, railways, irrigation etc. where the government is spending in a big way will do well in the coming year. Systematic, disciplined investment will fetch decent returns in 2016.

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