Market Outlook - 2015; Past Perfect, Present Tense But Future Bright :: Edelweiss

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2014: A Year of Revival and New Beginnings

2014 was an exceptional year for the Indian economy as well as for the capital markets. Last year,  we witnessed several transformations, viz: stability of the Indian economy, improvement in the political scenario and increased confidence in the Indian markets. These factors, in conjunction with the favourable global trends, have led to equity markets recording the highest annual returns in the last 5 years.

In a nutshell, 2014 has been the year of:

• Equity markets giving a return of ~32%, the highest in 5 years.
• Record high FII flows, total of ~US$42bn net investments in debt & equity combined.
• BJP winning 282 Lok Sabha seats in the general elections. This is the first time in 30 years that a single largest party gained majority in the Lok Sabha
• Consumer inflation falling to record low of 4.4%, much lower than the peak of 11% in 2013.
• Crude oil prices falling by 48%, the steepest annual fall since 2008.
• INR depreciated by 2%, the least in last 4 years.

Now the big question is - What is in store for India in 2015?

Looking ahead to 2015, we have some pertinent questions to pose.

• Is 2015 going to be a significant year in terms of sustained economic growth?
• What is in store for equity investors: will markets soar or remain subdued?
• Which are the significant changes that we should look forward to in terms of both domestic as well as global factors?

To answer these questions, we look at some of the prominent trends that have started playing out in India and study their impact on the domestic economy and various sectors. We have identified the best sectors and stocks to play in 2015 based on these discernible trends.

Earnings expectations are soaring; Backed by recovery in domestic growth

The consensus two-year forward EPS estimate for Sensex companies is currently standing at INR2207 for FY17E which implies 23% YoY growth. This is the highest growth in EPS estimates since December 2010. GDP growth has also bottomed out and we have started seeing tell-tale signs of economic revival. In the past two quarters GDP growth stood at 5.7% and 5.3% respectively, the highest readings since June 2012. Modest pick-up in the domestic investment cycle, coupled with the improved economic sentiment is likely to set the right stage for the growth momentum to continue. With a proactive government at the Centre pushing for GST, “Make in India”, speeding up coal block auctioning process and working towards enhanced ease-of-doing business, we believe that growth trajectory will continue to be upwards.

BRICS Divergence, Largest in the last 5 years…  

In the last five years, emerging markets (EM), especially BRICS, have been moving in tandem. However, in 2014 we saw a vast divergence between the best and worst performing EMs. Indian markets outperformed all other BRICS nations, notching a stellar 31% return in 2014, much higher than the (-)10% average for other 4 BRICS nations. This divergence is mainly due to improvement in India’s macroeconomic scenario vis-a-vis other Ems along with positive change in the political landscape in India. We believe that the divergence among BRICS nations to continue as global terms of trade are supporting India and favorable demography will lead this country towards a prolonged high and sustainable growth. 

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https://www.edelweiss.in/research/Market-Outlook--2015;-Past-Perfect,-Present-Tense-But-Future-Bright/10005414.html