Despite India being persistently favoured among the best investment destinations, Indian equity markets had a bumpy ride in 2015. After falling as high as 9 per cent and touching 52 week low on September 8 due to disturbing news like China slowdown and its currency devaluation and uncertainty over Fed rate hike, the Nifty 50 has bounced back by 5 per cent due to positive news like sliding crude oil prices, better macroeconomic data and Fed hiking rates as expect.
As we step into 2016, there is hope and optimism just like it happened in 2015. But this time there is high probability that the hope and optimism will translate into reality as macroeconomic environment has turned favourable and improvement looks sustainable.
Most market experts expect corporate performance to improve from December quarter due to impact of improved macroeconomic data, softer commodity prices, reduced interest rates. This in turn augurs well for Indian equity markets, which is slave of earnings growth.
“Stock markets are the slave of earnings. The improvement in macro-environment will start reflecting in corporate earnings which ultimately decides market movement. Lower commodity prices , low inflation rates , lower interest rates ,improving macro environment and improved government financials are all positive indicators to drive Indian markets. We see Indian equities will give good 15-20 CAGR for next coming five years,” said Rahul Shah, VP- Equity Advisory, Motilal Oswal Securities.
Sanjeev Prasad, senior executive director & co-head,, Kotak Institutional Equities sees Indian markets giving 10-15 per cent return over the next 12 months. “We expect multiples to hold up given India’s improving macroeconomic position and attractive medium-term growth prospects. The benefits of ongoing reforms will translate into a slow but steady economic recovery over the next 2-3 quarters. Earnings cuts will largely be done by 1QCY16 and FY2017E earnings growth should settle at around 15 percent,” he said.
However, Pankaj Sharma, Head of Equities, Equirus Securities expects 2016 to remain a tough year for investors and does not see many secular growth stories in terms of sectors or market caps. “This will be a stock pickers market in 2016,” he said.
As foreign institutional investors sold heavily in 2015, stock prices of large cap companies underperformed their mid and small cap peers. While Nifty 50 declined 3 per cent in 2015 (till December 29), Nifty 500 has remained flat at 0.8 per cent and Nifty Midcap has gained 9.3 percent. This is likely to get corrected in 2016.
“Large caps valuation has anyway seen a correction in 2015 which should get rectified due to the expected back-ended growth,” said Kunj Bansal Executive Director & CIO - Equity of Centrum Broking.
Market participants prefer sectors like automobile, consumer, financial services and select infrastructure in 2016. Stocks like State Bank of India, Bharat Forge and Ashok Leyland are common top picks in the large cap space while companies like Ashoka Buildcon and Inox Wind figure among the common mid-cap picks.