With barely
2 weeks left until the New Year 2016 dawns on us, everyone is busy making New
Years Resolutions. The investor community is abuzz with chatter about what the
new year is going to bring for us from the Indian Stock Markets. The year 2015
was exciting, we started with a lot of Euphoria about a Bull on the verge of
breaking lose and then we had a major halt in momentum and it looks like the
bull is off its shackles and is starting to gather pace.
This
article is my attempt to predict what the year 2016 might have in store for us
from a Stock Market perspective…
Disclaimer
Before Starting: The Stock Markets move in a mysterious way and in its long
history, Nobody has been able to accurately predict it. People are right
sometimes but are wrong most of the times. This article is a best effort
attempt to reasonably predict what to expect but there is no guarantee. I would
be lying if I said, this is what will happen. That’s why I used the words
“Might”…
The Year
that was – 2015
The year
2015 started off really strong. The new BJP Government headed by Mr. Modi had
just taken charge and the Stock Markets were reeling under a Ton of momentum on
the Bull side. 2014 was a Phenomenal year where the BSE Sensex started at
around 21200 in Jan and ended at around 27500 by the end of the year – A rise
over 6000 points or a 28% growth.
Coming of
this phenomenal run, we started 2015 when the BSE Sensex was around 27500 and
right now the Sensex is actually hovering around 26000 – a fall of around 1500
points or a 5% decline. If we further analyse the data for the year 2015, the
year has been more of a See-Saw than anything. See the picture below:
We saw a
slight correction in March & April where the Index erased the gains it had
posted until Feb. Then there was an incredible bull run of about 2000 points in
May and then a slight correction in July-August wherein the Index lost some
ground. Then we had another bull run of about 2000 points in September-October
and then the market has been Steadily declining ever since. The index has lost
almost 4000 points since the start of November and we are presently trailing
the start of 2015 by about 1500 points.
What is In
Store for Us in 2016?
I think
2016 will most likely be a good year for the stock market. Am expecting the
Stock Market to perform strong this coming year. Numbers wise – we can expect
the Sensex to inch closer toward the 30,000 mark and the Nifty the 9000 mark.
Based on the present Index values that would represent a growth of about 15-20%
in One Year.
What is the
Basis of this Opinion?
There are
many reasons why I feel that the year 2016 will overall be bullish for
Investors. They are:
1. India –
A Preferred Emerging Market Choice for Investment
Have you
heard of the MSCI Emerging Markets Index? This is an Index that comprises of
many emerging market nations like India, China, Brazil, South Africa, Russia
etc. India has a weightage of about 8% on the overall index and the MSCI Index
is a consolidated/weighted average of the indices of all these countries. If we
compare the MSCI EM Index, the indices of the major nations that comprise this
index and our BSE Sensex, one thing is very clear.
Over the
past two years, these indices have either stayed more or less flat or have lost
a ton of ground. But, Sensex has gone up significantly. If you recollect the
index figure from the start of 2014, sensex was trading at around 21200 and we
are presently closer to 26000 which is an almost 22% growth in 2 years.
This is
proof enough that India is still one among the most promising Emerging Market
Nations in the world. With the steps taken by the Government to increase
industrial productivity, power generation, improve infrastructure,
collaboration with foreign nations and attracting Investments etc., this trend
is expected to continue.
2. Strong
Domestic Interest in the Stock Market
There was
once a time when Foreign Investors could literally make or break the Indian
Market. Flashback to the economic crisis about 6-7 years back. Companies with
fantastic track record, profitability and prospects for strong growth were
losing value in the market rapidly. Foreign investors from the US and Europe
were liquidating assets in India to recoup their losses and as a result our
market took a deadly toll. The BSE Sensex was trading at around the 8000 mark.
However,
the situation now is markedly different. Yes, if today foreign investors decide
to pull out drastically, our markets will lose value but not as badly as it did
in 2008-09. We may expect a correction of about 10-15% at most if such an event
happens.
You may be
wondering why – right?
That’s
because, the domestic investors are really investing into our markets. Over the
past 6 months, even though FII Investors have liquidated a ton of their assets,
our domestic investors (especially mutual funds) have seized the buying
opportunity which has cushioned the blow. Yes, the index has gone down but not
as badly as it could’ve been if our domestic investors hadn’t stepped in.
This trend
is expected to continue with Indian investors buying more into our markets.
Couple that with strong foreign investment interest, don’t you think the
outlook for 2016 is positive already?
3. Strong
Performance by Good Companies
Though the
BSE Sensex is indicative of the overall stock market situation of India, it is
a
collective/weighted average of about 30 companies. If we review the
performance of these 30 companies individually, we can see that, 11 of them
actually made gains in the last one year and 7 of them made double digit gains
ranging from 13% to 42%. Of course, as the broader index went, 14 of the 30
companies made double digit losses ranging from 13% to 55%.
If you
investigate further, even though the broader market lost value, companies that
were posting strong profits in their quarterly financials and stayed out of the
news for the wrong reasons, their stocks did well.
Coming to
the interesting part. Though the BSE Sensex lost almost 1500 points, the BSE
Midcap Index actually has gained over a 1000 points in the last year with
numerous midcaps offering fantastic returns to Investors. Similarly the BSE
Smallcap Index has also gained about 800 points in the last year with numerous
smallcaps offering good returns to Investors.
The point
here is, this strong performance by good companies is expected to continue in
2016 and will help fuel the market upswing.
4. Market
Correction Presents Good Buying Opportunities
Many
Companies with Strong Fundamentals especially Bluechips are presently trading
at near their
52 week lows. Long Term Investors usually wait for such good
buying opportunities and start buying good stocks when they fall to attractive
valuations. This coupled with the earlier 3 points is going to renew the
interest in the stocks of good companies and propel the market higher.
Some Last
Words
Long Term
Investors do not fear the market corrections. In fact, they see corrections as
opportunities to buy into companies with strong fundamentals. I feel the
present correction has uncovered good buying opportunities. Investors with a
long term investment horizon should start cherry picking company’s with strong
fundamentals and start investing on a regular basis. Don’t buy in one big lump.
Buy in small quantities but do it at a regular frequency – more like a
Systematic Investment Plan. Set aside a certain amount each month that you are
comfortable investing, shortlist good stocks and buy into them each month.
Happy New
Year 2016 folks…
So, What Do
You Think? Sound off in the comments section and do remember to share this
article in social media so your friends could read it too…
Disclaimer:
This article is purely based on the Authors assessment of the market situation
and data gathered from the Internet. This article is not a recommendation to
buy shares of any company. Stock Investments are always subject to Market Risks
and you may lose all or part of your money. Please be careful while selecting
stocks for Investment. The Author does not accept liability for losses arising
out of stock buy/sell transactions done after reading this article.
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