2015 was a difficult year in the markets. If there was a “guess the Sensex contest” with an additional piece of information that crude will be around $35 per barrel in December, then consensus predictions would have been Sensex 30% higher and India Rupee appreciating at least by 10%. However we end the year, with a depreciating rupee and Sensex losing about 6%. Of course it a matter of pride that according to Bloomberg, IIFL Research was the most accurate among brokers in predicting the Sensex close for the year. And during the year, our economist was the only one out of over 50 who Bloomberg polled to get Rajan’s 50 basis points rate cut bang on target.
Enthusiasm about India and Modi has given way to pessimism and frustration. December 2015, most people are worrying if India will become a basket case – no green shoots, infra in a mess and banking sector will collapse leading to a macro economic disaster. If you just jiggle your memory cells a bit, the exact opposite was being talked about in December 2014 – how India is on the cusp of an economic revolution. 2014 was a hope trade with a reality check in 2015.
This brings me to the topic I wish to discuss– cycles. In spite of experts talking about the death of the economic cycle, I believe the cycle is very much alive and kicking. If you had invested in January 2002 and exited in December 2007, you would have had 6 years of consecutive positive Sensex returns. That was possible because of a commodity super cycle combined with domestic recovery. On top, we had global and domestic liquidity deluge. The party ended and Indian economy is still suffering from a hangover. Hangovers take time to go irrespective of any concoctions that Jeeves might conjure.
Currently, Indian economy is slowly but steadily finding its feet. Rural India was hit by bad monsoons and that has clearly affected rural demand. Urban consumption is picking up. Inflation is under control. Domestic liquidity is good. We will see more rate cuts over next 12 months.
What will drive up the economy? I reckon it would be consumption and whatever little government can do and spend on infrastructure, railways and defence. Benign interest rates will help. If rain gods smile, then you have an additional kicker. Private sector capex will take at least another 18 months.
My sincere advice to Investors – buy Indian equities with a long term perspective. Definition of long term differs from investor to investor but I guess anything over five years should suffice. And if you are someone who is data driven, from 1995, we have only two instances where Sensex or Nifty delivered two consecutive years of negative returns.
My forecasts for 2016 – Sensex 20% higher, Interest rates 50 bps lower and India Rupee depreciating by 5%.
Happy Investing and wish you a happy and Money Making 2016