A growth-oriented budget, passage of reform bills in Parliament, reduction in interest rates and stability in global markets top the wishlist of Dalal Street for the new year 2015.
Driven by robust investor sentiments, impressive foreign fund inflow and formation of a new majority government at the Centre, the stock market benchmark Sensex generated a bumper return of about 30 per cent for investors in 2014.
Analysts said markets are keenly waiting for the Union Budget 2015 to be presented in February. The market entities believe the upcoming budget could be a make or break event as this would be first full budget from new government and hopes are high with Finance Minister Arun Jaitley indicating start of second-generation reforms going forward.
“In our opinion, long-term investors are waiting on fringes with hope to get clarity on issues related to taxation (especially retrospective), GAAR, FDI in various sectors. Any disappointment from Budget can trigger steep correction in markets,” IndiaNivesh Securities’ Research Head Daljeet S Kohli said.
Market experts said the government should ensure smooth functioning of the Budget session and try to pass as many bills as possible because market behaviour will be determined to a large extent by how the budget session steers the way. Highlighting the market wishlist for 2015, Anand Rathi Financial Services’ Co-Founder and Vice Chairman Pradeep Gupta said: “Intended reforms such as insurance, GST bill need to be passed by the Parliament before the Budget. RBI to begin reduction of interest rates up to 100 bps during 2015.”
“A growth oriented budget stimulating investments in infrastructure and boosting consumption demand to be achieved by enabling ease of doing business and stable tax policies.” Issues like environment, land, power, coal, mining are to be effectively addressed through administrative and clearance process. This will manifest the impact of relaxed FDI limits in defence, railways and planned increase in insurance, Gupta added.
“There is a lot of hope from the new government and having received sufficient time to settle in at centre, the hope for 2015 budget is going to be very high in terms of not only focus on achieving fiscal deficit target but also being path breaking in terms of some of the key expenditure reforms and clearance of GST and insurance bill,” Prabhudas Lilladher’ Joint Managing Director Amisha Vora said.
On expectations from RBI this year, she said, as outlook for inflation has become very benign, it appears that 2015 should be the year where finally we will see reversal in interest rate cycle.
Reliance Securities CEO Vikrant Gugnani said that 2014 turned out to be a great year for many, especially for those who have been linked to the Indian stock market either directly or indirectly, and believed in the India story.
“Unfortunately for many others, who continue to remain sceptical and wary of participating in the long-term India growth story through equities, they have just missed 30 per cent gains in 2014 in the Indian stock market,” he added.
“We expect RBI to start cutting rates probably after the budget which shall give them more confidence on managing inflation expectations and stable currency environment,” Kohli said.
According to Gupta, there is a “high probability of a start of rate cut cycle by RBI in the 1st quarter of 2015 which would boost a number of sectors and improve corporate earnings from a medium to long term perspective. Further, government is expected to focus on implementation of key reforms like GST and other bills that would kick start the investment cycle which would work in favour of markets.”
Global markets also need to be sound which would favour market back home, experts said. “Greece is once again witnessing disturbances arising out of change in political establishment. We may witness increased uncertainty and disruption to global financial markets arising out of this. Other Euro Zone economies have also not come out of woods. While most of this news is already factored in the
global stock markets, however any surprise can have negative impact on all markets including India,” Kohli said.
Analysts said that the landscape for the Indian business environment looks extremely attractive with a business-pro government, depreciating oil prices, improving fiscal deficit and declining inflation.
“We believe that with improving domestic economy coupled with stable global economies will continue to attract investments in emerging economies like India,” said Yogesh Nagaonkar, VP Institutional Equities, Bonanza Portfolio.
Marketmen said that interest-sensitive sectors such as banking, NBFC, capital goods and auto could well be out-performers this year. Sectors like FMCG, Pharma and IT which has consistently shown good earnings growth will continue to still command some premium.
“Banking, financials and domestic consumption are likely to be key beneficiary sectors during 2015. We see improved profitability for banking and financials sector for FY16 given improving GDP growth, likely reduction in interest rate, improving asset quality, treasury profit for banks due to lower interest rate and expected improvement in credit growth with low cost of capital during second half of 2015.
“Similarly with falling interest rate & lower commodity prices should increase disposable income of masses in India which will fuel growth for consumer durable companies, FMCG companies,” Vora noted.
“For the markets to deliver in 2015, it’s crucial that reforms (especially GST timeline and ease of doing business) push should continue, investment cycle should re-ignite to take economic growth closer to its potential level and RBI should cut policy rates,” said Devendra Nevgi, CEO, ZyFin Advisors.
The Budget 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,” Nevgi added.