Market Overview – December 2015
Global Scenario:
Growth of US economy slowed down to 0.7% in December quarter against 2% growth recorded in the previous quarter. But employment has picked up. The growth in Euro area remained sluggish despite fall in energy cost due to steep fall in oil prices and easy money policy. China’s economic growth in the fourth quarter slowed to the weakest to 6.8% since the financial crisis. Weak exports, factory overcapacity, slowing investment and high debt levels, are all compounding problems for Chinese government. Its economy is transitioning towards domestic consumption of goods and services than on cheap exports. The present growth of around 6-7% on higher base is still very high by world standards but low against their own record of super human growth in last 20-30 years. Japanese economy remained in stagnation on weak domestic demand and sluggish exports which lead to deployment of negative interest rate by Bank of Japan. It’s GDP declined by 1.4%. Russia also saw its GDP declining on plunge of oil prices and the sanctions. Middle East countries suffered the most on oil plunge which should substantially affect its public spent.
Overall, the global growth prospects remain clouded in the near term, with emerging market economies losing steam, world trade slowing down and the recovery in advanced economies to remain weak.
Indian Economy:
India, with estimated growth of 7.6% in 2015-16 is the fastest growing and is the bright spot among emerging economies. The survey, tabled by FM yesterday, describes India as a “Refuge of stability and outpost of opportunity” at time of global turbulence and volatility. The government has taken several measures to combat corruption, reformed its FDI policy, thriving to become pro-entrepreneurship, increased public investment, launched much needed crop insurance scheme, controlled inflation, worked on cause of financial inclusion, taken concrete steps to restructure ailing power sector.
There are some major concerns also, like inability to pass GST legislation, Stress on bank( Gross NPA of PSBs at 7.32%) and corporate balance sheets, unable to generate targeted funds from divestment and serious disturbances within the country.
India needs to revive declining investments, needs to give more importance to rural sector for generation of more employment for which it needs to invest in human capital through higher spend on education and health to create skilled manpower, reset the subsidy regime to benefit only targeted class to reduce inequality.
Various initiatives by government like Make in India, Startup India, Digital India, Swachh Bharat, Smart Cities etc. are well received by globe and have started yielding result with jump in FDI for make in India particularly for defense and infrastructure sector.
Industry:
A review of quarterly earnings reports shows that majority of the companies displayed weak results, which were below expectations. Low raw material cost due to hammered commodity prices and low energy cost helped compensate rising staff cost and other expenses. Banking sector reported heavy losses due to provisions on account of asset quality review. Performance of IT sector remained unimpressive. FMCG sector could not witness much volume growth due to poor rural demand. Engineering, capital goods and infra sector performance remained poor due dull order flow, not much capacity addition and poor execution. Pharma sector performance remained weak due to US FDA warnings affecting generic exports. Tyre, Power and Oil marketing sector did well on favourable raw material cycle. Companies connected with natural resources like Oil exploration, steel, aluminum and mining sector were affected heavily due to global slowdown, particularly China. Exports continue to decline consecutively for the 14th month in a row on weakening global economies.
Stock market:
Taking queue from the falling global markets, particularly china and weak corporate performance, market continues to slide unabated and lost around 17% in this financial year. FIIs continued their selling in 2016 and have so far sold shares of worth 17000cr against which our domestic institutions have bought shares of worth 10000cr. The nervous sentiment has to some extent affected flow of funds to mutual funds.
Outlook:
The global credit rating agency Moody’s, is optimistic on India and has projected growth of around 7.5% in 2016 and 2017 but underlined the need for structural reforms. They said, “India is relatively less exposed to external factors, including a slowdown in China and global capital flows. Instead, the economic outlook will be primarily determined by domestic factors.” It said, adding that the large services export sector is another source of resilience.
Our view:
We at Care PMS believe that the present global scenario is likely to remain so, for a considerable period as developed economies are operating at their optimum level and have utilized all the available leverages that can be used to augment consumption. For them, to grow, they will have to depend upon emerging economies where they have hardly any option other than India. Our government is busy in creating good atmosphere to do business with many new initiatives as already mentioned above.
As said, time and again, we intend to focus on industries where demand is inelastic and robust and least affected by frequent technological changes. Investment in good companies with longer time horizon is sure to yield positive returns.
Happy Investing !!
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