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5 things to expect in 2016
The year 2015 has been quite a roller coaster ride for the stock markets. After starting on a high note thanks to 2014’s stellar returns, the markets first rose to all-time highs only to fall by 10-13%. And it’s quite likely to end the year in Red.
All eyes, now, are on the year ahead. Let’s see what the year 2016 could have in store for investors:
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Slow start to economic recovery
“After a forgettable CY2015, we expect CY2016 to be a better year,” according to a Kotak Securities report. The slow recovery in the economy is well likely to continue in the next two-three quarter of 2016. This will be aided by the government’s reforms measures. However, the second half of the year is expected to be upbeat. “We expect economic activity to start picking up from 2HCY16 as the government’s efforts to address some of India’s legacy investment issues start taking effect,” the Kotak Securities report said.
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Revival in consumption, macroeconomic position
It is not just economic growth that is expected to improve in 2016, but also other aspects like investment, inflation and consumer demand. Retail inflation could fall down next year allowing the Reserve Bank of India to cut interest rates by around 0.5%. The current account deficit (CAD) — the amount India owes to the world in foreign currency—may widen, if crude prices rise steadily during the next fiscal.
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Government reforms
Four key reforms are likely to help the economy next year, the Kotak report said. These are: power sector reforms, loosening of FDI limits, transparent mineral ore auctions by states and easier land and labor laws in certain progressive states. “This will result in greater investment confidence over the next 12-18 months,” as per the report. Bigger reforms like the Goods and Services Tax and Direct Benefit Transfers are expected to play a big role in FY2018.
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Moderate returns, global outperformance
Moderation seems to be the key word in the coming year. With growth and reforms to be slow and steady, even the market could give moderate 10-15% returns in 2016. That said, it is quite likely that India could continue its global outperformance in 2016 as well. This is because India continues to have better fundamentals than most of its developing market peers. “Even though we see moderate downside risks to earnings, de-rating of multiples may be limited. India’s promising top-down, medium-term story and interesting bottom-up ideas will prevent a meaningful correction,” the Kotak report said.
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Continued domestic flows
The year 2015 saw the rise of domestic investors in the Indian markets. Through Mutual Funds, they invested heavily in the Indian stocks. This helped nullify the negative effects of FII outflows in the latter part of the calendar. This trend is expected to continue in the year ahead. As interest rates rise in the US and oil prices fall, foreign investors could continue to pull out. Meanwhile, personal savings are on the rise in India, helped by the fall in inflation. This could mean continued domestic flows into the Indian market.
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15%
Nifty companies are likely to see an average 15% earnings growth in the coming year. This is higher than the single-digit growth seen this year. “A reduction in corporate tax rate (1-2% possible), which is not factored in our estimates, may shore up earnings,” according to the Kotak Securities report.
