Experts hopeful of better times for investors in 2016

While 2015 has been a period of uncertainty for investors, 2016 is expected to be much better — riding on improved corporate performance, combined with softer commodity prices and reduced interest rates.

“The stock market is a slave of earnings. The improvement in macro-environment will start reflecting in corporate earnings which ultimately decide market movements. We see Indian equities giving a good 15-20 per cent CAGR for the next five years,” said Rahul Shah, Vice-President — Equity Advisory, Motilal Oswal Securities.

This year, the market went into a tizzy on the slowdown in China and the devaluation of its currency yuan, along with the uncertainty over the Fed rate hike. The Nifty 50 fell 8.6 per cent to a 52-week low on September 8. It bounced back 4.7 per cent on positive news, including sliding crude oil prices, better macro-economic data and the Fed hiking rates on expected lines. Finally, the benchmark index ended 2015 (till December 30) with a decline of 4 per cent.

Analysts hope that 2016 will be more favourable. Sanjeev Prasad, Senior Executive Director & co-Head, Kotak Institutional Equities, sees Indian markets giving 10-15 per cent return over the next 12 months. “The benefits of the ongoing reforms will translate into a slow but steady economic recovery over the next two-three quarters. Earnings cuts will largely be over by Q1CY16, and FY2017E earnings growth should settle at around 15 per cent,” 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. Pankaj Pandey, Head of Research, ICICI Securities, said the speed at which the price correction in commodities gets arrested — as this will have a meaningful bearing on the profitability of commodity-related stocks — will be the key determinant of earnings stability/volatility. He estimates the S&P BSE Sensex to reach 29,000 by next December-end, which implies an upside of roughly 12 per cent.

As investments by foreign institutional investors wilted in 2015, stock prices of large-cap companies underperformed their mid- and small-cap peers. While the Nifty 50 declined 4 per cent in 2015 (till December 30), Nifty 500 has remained flat and Nifty Midcap has gained 8.6 per cent.

There are mixed views on whether the mid-cap outperformance will continue. Kunj Bansal, Executive Director & CIO — Equity, Centrum Broking, sees the correction in large-cap valuations getting rectified.

But Pandey of ICICI Securities expects mid-cap outperformance to continue given his expectation of 24 per cent earnings CAGR between FY15-FY18 compared with 18 per cent by large companies. “However, the action may get concentrated as valuations are becoming expensive,” he pointed out.

Sector picks of various market participants continue to be tilted towards consumption themes. Automobile and consumer are the common picks by Centrum, ICICI Securities and Kotak. Among the cyclicals, engineering, capital goods and industrials are most favoured followed by roads and highways.