by Mr.
Devendra Nevgi, CEO, ZyFin Advisors
“The Indian stock
markets rode higher on the back of hope of structural reforms driven by a
decisive political mandate and improving macro-economic balances.
The new Narendra Modi
Government reinforced its position in the elections in some of the important
states and initiated the reforms in a gradual manner including those on FDI
norms, direct transfer benefit, diesel de-regulation, labour reforms, coal
allocation, the ordinance on land acquisition, the ‘Make in India’ initiative
etc.
With these reforms, hope
and the resultant buoyant FPI flows (USD 4,200 Crore) in debt and equity
fuelled a stock market rally wherein the benchmark index the SENSEX returned
30% in INR terms.
 |
| Devendra Nevgi, CEO, ZyFin Advisors |
The mid and small
capitalization stocks outperformed the narrow markets by a large margin.
Central banks beyond the US Federal Reserve especially in Japan and EU were
active in providing stimulus to their respective economies.
The fall in oil
prices did rattle oil exporting countries such as Russia (the US sanctions
added fuel to the fire), but the same did not blow up into a full-fledged EM
crisis. The US rates, as expected by analysts, in general did not rise enough
to unsettle the markets, though the US Federal reserve changed its language a
bit to being more ‘patient’.
The global backdrop of
weaker growth (excluding US) and the falling inflation helped in the form of
falling commodity prices, especially as crude oil supply rose dramatically due
to the US shale output combined with the OPEC not cutting its output. Domestic
wholesale inflation fell to zero, the INR stabilized, the current account
deficit narrowed and the RBI turned dovish in its monetary policy stance.
The year of 2015, will
be the year of convergence of financial markets with the real economy, since
financial markets tend to move in advance. Stock prices begin with a higher
performance base.
For the markets to
deliver in 2015, it’s crucial that the reforms (especially GST timeline &
ease of doing business) push should continue, the investment cycle should
re-ignite to take the economic growth closer to its potential level and the RBI
should cut policy rates, as factored in by the bond markets.
The convergence of
financial markets, with the rise in corporate earnings, remain the driving
factor for the markets to maintain its premium valuations over their EM peers.
The Budget in February will be the first acid test. Fiscal consolidation
remains the key domestic risk. Globally a bounce back of oil prices, rise in US
rates and an EU/EM crisis driven would be the primary risks.”
ZyFin Research Pvt. Ltd.
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