It is again that
time of the year when there is a slight nip in the air, we pull out the
sweaters and jackets from the wardrobes and become nostalgic about the year
gone by and excited about a fresh new year coming up. I am exactly in the same
mood myself so here is a little bit of what went on in 2015 and some worthless
crystal ball gazing for 2016.
The year started
with the benchmark BSE Sensex at about 27,500 and ended the year at close to
26,000 losing about 5.5%. During the year, the index went up beyond 30,000 and
fell to a low of 24,800, fluctuating 2500 points on either side of the starting
mark of the year. Macro economical events held sway on a lot of the market
gyrations. Starting from the US Fed rate cut, Greek referendum to remain in the
Eurozone, Chinese decline and continued pressure on oil prices and other
commodities made their presence felt on the Indian markets. Another very
important event which took place was the decision by the government to allow
investment of its corpus into the Indian equity markets. This year saw EPFO
deciding to invest 5% of its incremental corpus being invested. This is a
long-term game changer for India as we would become less dependent on FII
flows.
Indian corporate
earnings failed to accelerate during the year and the initial euphoria of
having a majority government seems to have died down now as people have begun
realizing that bringing the Indian economy back on the growth path is not a
short term fix. It will take time and the final outcome is also uncertain as
the world is going through a deflationary / recessionary phase. India has had a
huge benefit from the multi-year collapse of crude oil. That has given some
breathing space to the government to get their house in order. At the cost of
hazarding a guess, I would think that we will continue to have benign oil
prices for atleast a couple of years more, so we have to make these years
count.
Mr. Raghuram Rajan
has been a bright spot in our economic landscape. I sure hope the government is
prudent enough to extend his tenure. Mr Rajan has over this year take steps to
bring in more competition into the banking space by giving out licenses for new
full service banks and payment banks. He has also resisted the call to reduce
rates for most of the year and only did it when the specter of inflation
receded. The overall NPA situation in the banking sector continues to be
precarious. Mid-sized PSU banks are the most at risk as the new banks will hit
their customer base. (For some more information, read "Payment
Banks - Airtel Bank in the making?")
Another aspect which
is beginning to get scary is the fresh breed of investors / traders who have
not seen multiple cycles or major drawdowns on the portfolios talk flippantly
about sustainable growth of net profits of 25% or PEs of 30. When this type of
cacophony increases, it is time to be careful. Safir Anand has written a great
post which I suggest all to read (link
here). For a prudent investor, what is critical is to make sure you don't
lose your capital permanently. Some of the midcap and smallcaps I see people
chasing these days are apt to do just that. Everyone wants a
"multibagger" these days. No one is happy with a 20% compounder!!!
In 2016, I think
there are a lot of macro headwinds. Chinese slowdown, Eurozone issues are
likely to crop up anytime, US interest rates going up, Indian state elections,
Crude price volatility all will play out at one point or the other. Like every
year my outlook is to protect capital and look for reasonable returns. In fact,
I am trying to moderate my expectations so that high expectations don't force
me into risky trades.
A step-up in public
investment as the government fights to avert an economic slowdown might start
paying some dividends in the latter half of the year. Plays on infra or
infra-ancillaries can be a good long term bet. Consumption stocks could also
get a boost from the pay commission award.
Lastly, stay
solvent, stay invested, and have a great year.
