Markets may remain rocky

Experts believe that a recovery in domestic economic growth, revival in corporate earnings and the passage of some of the long pending reform bills like the GST would lend a helping hand to ‘bulls’ in pushing the markets higher in 2016. In the backdrop of global uncertainty, they feel investors should take stock specific investment decisions rather than sector-specific ones.

One of the advantages that the domestic equity markets enjoy over the rest of emerging market universe is India’s strong macroeconomic fundamentals. “Going into 2016, India is one of the bright spot in the entire emerging market universe because of which global portfolio managers are likely to allocate higher amount of funds to Indian equity markets this year,” said Ambareesh Baliga, a senior research analyst, adding that the markets are likely to register a 18 per cent gain in 2016.

Sounding out caution, Daljeet S. Kohli, head of research at India Nivesh Securities, said that the impact of interest rate hike by the US Federal Reserve on Indian markets had remained benign till now.

“However, that should not lead us to complacency. By the middle of January 2016 when allocations to various regions start, we may witness more pronounced effect of Fed lift-off,” he said.

He believes that FY17 earnings revival is predicated on boost from government on both capex expenditure as well increase in salaries of its employees. Some visibility on earnings will emerge from March 16 or June 16 quarter results. “Until then we cannot say with confidence that 17 per cent growth can be expected in FY17,” he added.

For investment, keep focused on sectors that are driven by domestic consumption. FMCG, pharma , auto and auto ancillaries, private sector banks and a few multinational corporations. Pick stocks on the basis of their return on equity (PAT as a percentage of net worth) over a few years. Ideally, don’t buy companies with huge debt. Pick companies which are paying regular dividends. This is a constant, irrespective of the datelines.

All other sectors are trading opportunities. Infrastructure, commodities, PSUs etc. Buy on hope and sell on event. Do not keep them for long. Have stop loss limits on these stocks. These sectors are characterised by poor average return on shareholder funds, cyclicality in earnings, high working capital needs and leveraged balance sheets. So these are not good for long investment or wealth portfolio.

Now, the market is hot for IPOs. For some more time, it pays to speculate on the IPOs. Buy and sell on listing. Valuations are very rich and just ride the momentum. You will know that the cycle is turning, when the listing premiums start to disappear. Build your trading portfolio up before the Budget. Most probably, it would make sense to liquidate soon after Budget. I do not see any immediate relief in terms of earnings growth. Valuations are rich and potential returns are low. Buy some tax free bonds. Interest rates may continue to disappoint in 2016 by remaining stubborn.

No reason to change anything. Governments will neither help nor hurt too much. Yes, things like corporate tax, service tax, GST will keep exciting the ‘talking heads’, but are unlikely to shift earnings too much. Infra does get a boost, but most companies ill, overladen with debt and bereft of talent pool.