Equinomics Research & Advisory
2014 December month has been highly volatile for the Indian equities the Sensex touched a record high of 28,809 on December 1, 2014 but then fell 2,000 points last week. Again in the last 3 trading days it recovered about 1,000 points. The FIIs, who largely remained as net buyer of equities throughout this year except in October, have sold shares worth Rs 4,839 crore in the last week alone.
Hence, many wonder whether there is any chance of the domestic equity markets falling like what we saw in FY2009.
It is surprising to note that this 30 % rise in the broad indices in 2014 is not a result of massive inflows from the FIIs or the domestic institutions. For instance, in 2010, the Sensex rose 16.5 % to recover to the previous peak of 21,000 and the domestic markets received an inflow of close to $30 billion from the FIIs.
Whereas the year 2014 saw a solid electoral mandate & also the emergence of strong political leadership and further, across the board everyone expects the domestic economy to improve its GDP growth significantly going forward.
Still their inflows this year are about half of what they brought in 2010 when the economy saw the issues of political impasse, high inflation and rising oil prices - while WPI-based inflation was close to 10 %, the crude oil price rose 20 % in that year.
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| G. Chokkalingam, Equinomics Research & Advisory |
Though the domestic equity market has seen a boom time, inflows from the both the domestic and foreign institutions remained tepid in 2014, perhaps due to lack of valuation comforts. Chances are higher that they may bring in a lot more resources to the Indian equities as we move close to FY2016.
From April 2015 onwards, the analyst community and the fund managers would start incorporating the (with about 15% upside) projections for FY2017 in their corporate earning estimates. The ruling party would also improve its tally in the Rajya Sabha as it has been winning the recent state elections and the elections for the Rajya Sabha are held every second year.
By end of FY2016, the government would have taken a lot more initiatives on economic reforms and aggregate investments front.
What can derail the revisit of structural bull run in the domestic market is any possible global recession.
There is a lot of apprehension about the slowdown in the Chinese growth. However, it should be noted that China, with about $9 trillion GDP, is still growing at nearly 7% which enables to add incrementally over $ 60,000 crore of GDP every year. This incremental GDP alone is two-times the GDP base of Malaysia!
Further the US, with nearly 3%, annual growth can add little more than $ 50,000 Crore of GDP cake every year. These two economies alone, which account for nearly 1 / 3rd global GDP, can add close to half of global incremental GDP in this year.
As long as these two giants of the world do not witness any significant fall in their growth, the domestic equity market would continue to enjoy the benefits of structural bull run in 2015 as well.
About the author
Mr. G.Chokkalingam is Founder & Managing Director
at Equinomics Research & Advisory Pvt Ltd, Mumbai
Equinomics Research & Advisory Pvt Ltd
18- 3/A, Ekta CHS, Shiv Dham Complex
(Opp to Oberoi Mall)
Filmcity Road, Malad (East)
Mumbai - 400 097
E- mail: chokka.g@equinomics.in
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