In the
previous article, I had written about what to expect from the Stock Market as a
whole in 2016. We talked about blue chips, mid-caps and small-caps. But, that’s
just the broader picture. The Stock Market is comprised of stocks from various
different sectors and not all of them perform similarly. Some sectors do well
while some don’t.
As a
continuation to the previous article, in this article we are going to review
the sectorwise expectations from the Indian Stock Markets for 2016…
Before We
Begin: As with any article on stock markets, let me start off by saying that
there is no Guarantee that whatever you read in this article will happen in
2016. There is a chance the markets may behave totally opposite of what we
expect. This is just an assessment based on my judgment of the markets and
future prospects in 2016.
A Word of
Clarification:
When I say
outlook as Positive or Neutral or Negative to summarize a particular sector, it
is basically in comparison with the broader index like Sensex or Nifty. As you
may recall, overall I feel 2016 is going to be bullish which basically means
sectors where the outlook is Positive may Outperform the Sensex while those
where the outlook is Negative may Underperform. Those that are Neutral will
more or less follow the Sensex.
The
Automobile Sector – Slightly Positive
The Auto
Sector was one of the good performers in 2015. In fact, the single biggest
gainer of the BSE Sensex in the last 1 year – Maruti Suzuki is from the Auto
sector. Though other Auto Manufacturers lost some ground in 2015, they did not
lose as bad as other segments. India has a good public transportation system
but it is still far from world class and is definitely not enough to meet the
transportation demands of our growing population. The growth in Infrastructure
and increasing roads in India coupled with the increasing purchasing power of
our people is going to keep the demand for Automobiles strong in 2016.
With
concerns about pollution and congestion in our roads, Auto Manufacturers will
be forced to invest in more energy efficient vehicles that are more environment
friendly. But, the general trend will be positive and will remain that way for
months to come.
I think the
Auto Sector will at least meet the broader Index benchmark like Sensex or most
likely even beat it. Hence the Positive Outlook.
The Banking
Sector – Neutral
Three of
the 4 Major Banks that are part of the BSE Sensex ended up making losses with
SBI and ICICI losing over 20% over the past 1 year. If we take the overall
sector, majority of the Banking stocks are in Red from their peak in January
2015.
Though
majority of the banking stocks have taken a beating, this has created
interesting buying opportunities which Investors would be looking to take
advantage of. With India’s growing population and need for Banking &
Financial services, there is no way the banking stocks are going to make
horrible losses in 2016. However, with increasing competition as well as bad
loans that are plaguing most banks, the chances of them being classy outperformers
are pretty slim.
Though some
of the banks may outperform I think that the Banking sector will be more or
less in line with the broader index benchmark like Sensex or maybe even be
slightly lower. Hence the Neutral Outlook.
The Capital
Goods Sector – Neutral to Slightly Negative
You may be
wondering what I mean by Capital Goods. We are talking about companies from
Engineering, Electrical, infrastructure and other related areas. For ex: Bharat
Electricals, BHEL, Siemens, Crompton Greaves etc would constitute the Capital
Goods Sector.
The last
one year hasn’t been so great for companies in the Capital Goods Sector. In
fact, over the past 3-5 years the stocks of the Capital Goods sector have been
relatively flat and have mostly underperformed the broader indices like Sensex.
With many of these stocks near their 52 week or lifetime lows, chances of
consolidation and renewed buyer interest are quite high. Plus, with the
governments emphasis on the India Growth Story, there is a chance that the
fortunes of this sector may get revived this year.
Overall, I
think the stocks in this sector are going to be most likely underperformers
while some may try to meet the returns of Sensex. Hence the Neutral to Slightly
Negative Outlook.
The Fast
Moving Consumer Goods Sector – Positive
Fast Moving
Consumer Goods (FMCG) refers to majority of the products we use every day. If
you are struggling to visualize what constitutes FMCG, think of Hindustan Unilever the well-known maker of
majority of our day to day utility items. If you review the statistics for
2015, HUL was one of the strong performers where investors made gains of about
15%. On the other side of the spectrum, we can see that over the last 1 year,
the stock prices of majority of the FMCG Players has relatively stayed flat and
have gone down.
With our
rising population, the demand for FMCG items is going to continue to remain
strong. However, strong competition may impact the margins of the smaller
players but companies that enjoy market dominance may continue to be
profitable.
Overall, I
think the stocks in this sector are going to be outperformers as against the
broader index and hence the Positive Outlook.
The
Information Technology Sector – Neutral
The IT
Sector had been the dream investment option for the better part of a decade now
with investors of IT Giants like Infosys, TCS, Wipro etc making handsome gains.
However, the last year hasn’t been that noteworthy for this sector. If we
review the stock price movements of the IT Co’s its evident that majority of
them have either remained flat or have lost ground.
With rising
competition and increasing costs in India, companies are now forced to expand
into other locations like China and aggressively cut operating expenses to
retain their profit margins. Also, the IT spending of the companies that avail
these services are under immense pressure due to the uncertain economic outlook
across the globe especially in US and Europe which constitute to almost 90% of
their business.
The demand
for IT Services is no doubt going to be steady but, the rising operational
expenses especially the cost of retaining talent and the adjustment to the
pricing structure to combat the heavy competition are going to heavily strain
the profit margins. This in return is going to impact investor interest.
Overall, I
think the stocks in this sector are going to perform more or less in line with
the broader index, hence the Neutral Outlook.
The Metals
& Mining Sector – Negative
The Metals
& Mining Sector has been plagued by rising costs as well as immense
competition from China. Almost all the stocks from this sector have ended up
losing a lot of ground with some of them losing as much as 30-50% of their
market value in the last 1 year.
With no
major relief in sight, I think it is highly likely that stocks from this sector
are going to continue to underperform, hence the Negative Outlook.
The Oil
& Gas Sector – Neutral
Companies
in this sector have been under tremendous pressure & spotlight due to
falling crude oil prices and a weak rupee. The falling crude prices looked like
great news for the refineries but the weak rupee and the reduction in prices by
the central government kind of nullified the gains.
Though the
state owned Indian Oil, Bharat Petroleum and HPCL have done pretty well, the
Oil & Gas Sector as a whole has lost considerable ground in the past 1
year. The global crude price situation doesn’t seem to be improving much and
nor does it look like the Rupee is going to get stronger.
Overall, I
think that the stocks in this sector will more or less in line with the broader
indices and hence the Neutral Outlook.
The Pharma
& Healthcare Sector – Neutral to Slightly Negative
With
India’s rising population and healthcare needs, this is one sector where
companies that have a good pipeline of products and operating model are going
to be profitable no matter what. This is very much evident from how the stocks
in this sector have performed in the past year. While some companies have made
double digit profits in terms of stock prices, some have made double digit
losses while many have stayed relatively flat.
Over the
past 3-4 years many of the Pharma stocks have given investors extravagant
returns and we are potentially looking at stocks at their multi-year peak
prices. This could potentially trigger some profit booking which could cause
some kind of correction in prices.
However,
the first sentence of this paragraph is very much true and hence I think the
stocks in this sector will more or less be in line with the broader index with
some of them facing correction. Hence the Neutral to Slightly Negative Outlook.
Some Last
Words
As you can
see from the sectorwise review, the outlook is mostly Neutral or Positive and
in-line with the broader expectation of a decent bull-run in 2016. That being
said, I want to reiterate that if a sector is classified as Positive or
Negative that doesn’t mean that all stocks in the sector are going to
outperform or underperform. A good stock in the negative outlook sector it
could still outperform and a bad stock in the positive outlook sector could
underperform. This outlook classification is by no means applicable to all
stocks in a particular sector.
If you do
your due diligence and choose good stocks, invest regularly and at attractive
prices, your chances of making good profits are pretty good for 2016.
Happy
Investing!!!
Disclaimer:
This article is by no means a recommendation to buy or sell stocks of any
particular company or sector. This is just the authors interpretation of the
current market situation and outlook for the upcoming year. Stock Investments
are subject to market risks and the chances of losing all or part of your
investments are very real. The Author does not accept any liability arising out
of stock buy or sell transactions done after reading this article.
