After a tepid 2016, will markets be on a roll in 2017?

The stock market was a bit of a write-off in 2016, with both the Sensex and Nifty ending up barely 2-3 per cent over the year. A combination of circumstances, from weak earnings growth to demonetisation to Donald Trump’s election as the US President, took their toll on the market.

But despite the continuing uncertainties, most stock brokers and money managers we spoke to expect 2017 to be much better.

Centrum Broking expects the Sensex to touch 30,500 in a base-case scenario and 33,250 in a best-case one. That’s an upside of 15-25 per cent from the current level.

That positive prognosis is shared by Geojit BNP Paribas, which expects the Sensex to go up to 30,200 by March 2018. Angel Broking too is sanguine, and predicts the Sensex will touch 29,000 by December 2017. Underpinning the optimism is the belief that while the next two quarters could be rocky, corporate earnings and the market will revive thereafter.

Says Vinod Nair, Head of Research, Geojit BNP Paribas, “We currently expect only 3 per cent growth in Sensex earnings in FY17 due to the impact of demonetisation. But earnings growth should normalise by March 2017. We expect 12.5 per cent growth in FY18.”

He adds, “We expect much of the market volatility to play out during the first quarter of 2017. Currently, the market is under pressure owing to the unexpected cut in earnings, and that is likely to reverse in the next couple of months.”

Concurring with this view, Dinesh Thakkar, CMD, Angel Broking, says, “Corporate earnings will be impacted for the next two quarters, with some spillover in the first half of the next fiscal. As liquidity eases, companies are likely to see a pick-up in business activity. The market is likely to have priced in the negative impact of demonetisation and will track its benefits.”

Abhishek Anand, Fund Manager, Centrum Broking, says that recovery may be back in two or three quarters.

Arun Thukral, CEO, Axis Securities, thinks that as the quantum of notes in circulation increases, the economy will amble back to normalisation by end FY17, with discretionary demand reviving from the first quarter of FY18. He says, “Corporate profits are expected to grow double digits over the next couple of years.”

Similarly, Sampath Reddy, CIO, Bajaj Allianz Life Insurance, is hopeful that the slowdown impact of demonetisation on the economy will be limited to a few months, and will not be felt beyond the first quarter of 2017.

Many other fund managers too expectcorporate earnings to revive. Mahesh Patil, Co-CIO, Birla Sun Life AMC, thinks that the Sensex companies should see growth in the mid- to high teens in one or two years as consumption revives and government expenditure persists.

Gopal Agrawal, CIO, Mirae Asset Management, sees earnings growth of 15 per cent plus in FY18, thanks to stability in global trade.

Vinit Sambre, Fund Manager, DSP Blackrock Mutual Fund, says demand should see a revival after a couple of quarters if the government provides a fiscal stimulus in the Budget.

But a section of the market feels the pain is unlikely to ease anytime soon.

Nilesh Shetty, Associate Fund Manager-Equity at Quantum AMC, says, “The popular expectation that consumer demand will come rushing back once cash in the system normalises is looking more and more like wishful thinking. Lower demand leads to lower income leads to lower wage growth or job losses, the exact opposite of a virtuous economic cycle.”

He adds, “Weak corporate performance, coupled with rising international yields, may test flows into India as FIIs look at other commodity-linked economies delivering stronger corporate performance.” Ambit Research also subscribes to the view that the pain will be prolonged. Its recent report says, “GDP growth is unlikely to recover fully to pre-demonetisation levels in FY18 too. This is mainly because the government’s increased focus on tax compliance is likely to mean that the non-tax-paying informal sector in India will begin to shrink in FY18, resulting in a degree of job losses and, hence, demand destruction.”

Which camp eventually wins the argument is hard to say, but everything points to 2017 being a year that holds big promise and also big risks for the market.

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