Despite a 10% rally in March and foreign investors pumping in over $4 billion into the Indian equity markets, the Sensex and Nifty are still down by almost 3% in the quarter ended in March 2016. In the same quarter, India stood second to Taiwan among its Asian peers in terms of foreign fund flows of $1 billion, while Taiwan had foreign funds bringing in as much as $4.8 billion.
On the back of global slowdown concerns, continuing weakness in crude oil prices, cooling-off in the Chinese economy and deflationary fears in Japan (as the country’s central bank imposed negative interest rates), investors had turned risk-averse in January and February.
Amidst disappointing earnings posted by most companies especially public sector banks in the quarter ended in December 2015, the key to market performance, according to experts, could be a turn in the earnings cycle. SBI had reported a 61.7% fall in its profit compared to the previous quarter. On the other hand, 12 out of 26 PSBs collectively reported a net loss of R13,562 crore in the same period.
According to a research report by Morgan Stanley, up ahead “in 2016, on the domestic front, the market will be focused on the RBI’s monetary policy, the upcoming parliament session- action on the GST Bill and bankruptcy law, the Q4FY16 earnings season and the state election results (since a result in favour of BJP could boost market confidence that administration at the centre will not shift its policy stance). However, the key to absolute market moves is still what happens outside India.”
The report also expects a sustainably lower inflation ahead at 4.7% from the current 5.18% and a rate cut of 25 basis points in the next monetary policy by the RBI, which will be supportive of growth recovery. While India is trading off near all-time high valuations versus emerging markets (EM), given its rich valuations and positioning, India will likely underperform if EM rallies as seen in the current quarter ended on March 2015, the report said.
In an EM funds and asset allocation report by JP Morgan, analyst, Adrian Mowat continued to kept his overweight stance on India unchanged at 8.3%.
On Friday, most of the Asian markets closed flat as benchmark indices like the Sensex, Kospi, Jakarta Composite and Hang Seng fell between 0.2%-1.2% while the Shanghai Composite index gained 0.3% as China’s official factory gauge showed improving conditions (up 50.2 points) for the first time in eight months. The Sensex on the same day lost 72.22 points and closed at 25,269.24 points while the Nifty was down 25.35 points, closing at 7,713.05 points.