The benchmark BSE Sensex is expected to post negative returns in dollar terms in the calendar year (CY) 2016, amid expectations of a hike in interest rates by US Fed Reserve and depreciation in the value of rupee against the US dollar which accelerated the selling of Indian equities by foreign portfolio investors (FPIs) .
FPIs have sold stocks worth $2.7 billion since November 1 till date. Sensex is posting negative returns for the third time since CY12. Earlier, the benchmark index gave negative returns to investors in 2015 and 2013. From the beginning of 2016 till date the Sensex has lost over 1.41% in dollar terms .
In a note to the investors , Deutsche Bank said India will not remain immune to the outflow pressure across emerging markets due to the outcome of the Italian referendum on December 4, the pace of outflows from China and the associated depreciation of the Chinese yuan, US Fed meet and US election outcome.
“In case the pressure on outflows from China increases as a consequence of Fed policy and US President-elect Donald Trump’s pro-growth policies, which would result in sharp dollar strengthening, we may see the acceleration in the selling by foreign institutional investors who have been net sellers throughout November. We expect the remainder of 2016 to be highly uncertain, which will keep markets volatile with a downward bias. We cut our December 2016 Sensex target to 25,000 ,” it said.
The possibility of a US Federal Reserve hike has increased after employment in US rate fell to a nine -year low of 4.6% in November. In November the US economy added 1,78,000 jobs, lowest since August 2007.
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Gopal Agarwal, chief investment officer of Mirae Global India said retail investors have benefited in the past two years despite Sensex posting negative returns as mid-cap stocks have outperformed the benchmark index.He added that market will continue to give returns to investors as the economy is on an upswing due to good monsoons, the announcement seventh pay commission, and falling interest rates. ” However, one has to watch how demonetisation plays out and how the swift the economy recovers from a slowdown in demand,” he said.
Except for Shanghai Composite Index which gave -14.66% returns, most of India’s peers have outperformed the Sensex. Brazil gave maximum returns to investors at 58.41% followed by Russia which gave 39.31% returns and Indonesia’s Jakarta composite index which gave 18.39%.
Consensus estimates peg the one-year forward trading multiple for the benchmark Sensex at 15.5 times, somewhat more expensive than Indonesia’s at 14.79 times. Brazil is far cheaper, trading at 12.6 times, one-year forward estimated earnings.