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Market Wizards Gaze Into 2016

Monday, January 04, 2016

Everybody expects 2016 to be better than 2015 for the equity markets. But most are unsure as to how political and economic events will unfold and what impact it would have on their portfolios. So we decided to talk to the Market Wizards and get their views first hand. Below are the forecasts of the five most respected names on the Stock Market's circuit. Seemingly most are bullish on the prospects of the nation as a whole and believe this would reflect on equity values sooner or later...

We expect the Sensex EPS to report a growth of ~11% in FY2016 and ~17% in FY2017. Based on the earnings estimates our 12-month Sensex target works out to 31,500, implying a 21% upside from current levels. Our corresponding targets for the Nifty is 9,500 in 2016. Within equities, we believe sectors which are a strong play on the urbanisation and consumerism theme, as well as government spending plays in the coming years would continue to outperform. Sectors on which we remain positive in the coming year include      NBFC’s (especially those focused on Housing finance);  Automobiles (passenger four-wheeler and commercial vehicle space); Pharmaceuticals and Select plays in the Capital Good and Logistics sector.
—Dinesh Thakkar, CMD, Angel Broking.

We are witnessing a trend where more and more investors are coming back into financial assets - this is 17th successive month witnessing steady rise in number of folios. Industry has achieved record high Retail inflows in Mutual funds over the year, defined by inflows in Equity, ELSS, and Balanced categories. Retail inflows were close to Rs 1.7 lakh Cr in 2015 so far. This is a major upswing compared to Rs 1.3 lakh Cr of Retail inflows in the entire 2014. Retail flows, net of redemptions have also been consistently positive in the last 18 months in a row. Overall net investment in MF in 2015-16 is more than the cumulative investment during the entire previous bull-run, between 2003-04 and 2007-08.

Retail participation has shown remarkable resilience to market volatility and we are confident that it will continue in 2016.Equities are likely to emerge as one of the best performing asset classes over the long run and investor are expected to prefer the asset class on higher growth potential coupled with relatively lower attractiveness of alternative investment options. However, it is imperative that investors adopt asset allocation across both Equity and Fixed Income products to avoid a skewed portfolio.

This can also be achieved by investing in Balanced Funds which give the additional advantage of tax efficiency. For 2016, we are bullish on the MF Industry and the Indian economy as a whole. The new Government has started in the right earnest to not only bring about administrative efficiency but to put in place new policy initiatives which will revive the economic growth in a shortest possible time. MF Industry growth momentum is expected to continue with assets crossing the Rs 20 lakh Cr mark by 2018.
—Sundeep Sikka, President and CEO, Reliance Capital Asset Management

We expect the Sensex to reach 31500 and Nifty50 to reach 9400 by the December of 2016. Sectors likely to outperform and give above average risk adjusted returns would be Two wheeler in Auto sector, Pharma and Health care, FMCG, IT and Private Banks. All the above sectors have the potential, the moment GDP growth rate picks up, profitability will substantially improve thereby driving stock prices to higher levels. All these sectors have passed through the period of correction in the 2015 and are therefore ripe for the next leg of up move in the year 2016.
—Jimeet Modi, CEO, SAMCO Securities

In 2016, equity market performance will be driven more by real performance rather than by expectations like the premium attributed earlier to global excess liquidity, political strength of the government at the centre or any other major trigger. In the most likely scenario, earnings growth may still remain modest in 2016, but better than 2015. This improvement in our view will be driven mainly by three factors a) higher government spending which will support demand specially in the urban areas and road infrastructure, b) currency depreciation and c) moderate improvement in growths in US and Europe. With elections lined up in 10 states in the next 24 months, political developments can also have bearings on market sentiment in the short term. Based on all these factors we do not expect the market to see any major re-rating in the near term. However, there will be abundant opportunity for bottom up stock picking.
—Krishna Kumar Karwa, Managing Director Emkay Global Financial Service

Going forward, we expect to see a gradual rise in markets backed by greater confidence in corporate earnings in FY17 coupled with robust economic growth. We expect the India Inc. bottom line to start improving over the next few months. On one hand, the Government spending is expected to continue. On the other hand, we expect private sector capex to rise as demand sustains, capacity utilization expands and balance sheet stress reduces either through asset sales or better cash-flows and the overall confidence in long term growth of the economy increases.  On the consumption side, the recent recommendations on OROP and 7th Pay commission should help sustain demand. We are positive on Private Sector Banks. Sectors such as Roads, Railways and Defence are in a sweet spot as government spending is expected to pick up. We expect some action in Power and related sectors, IT, Pharma and Auto. However, we are cautious on commodities.
—Kamlesh Rao, CEO, Kotak Securities

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