2. Introduction:
India’s stock benchmark CNX NIFTY
delivered negative returns for the year
2015. The streak of positive returns from
2012 is finally broken in 2015 with a
return of -3.86%. This was still better than
the 2011s negative return of 24.62% but
the investors are still worried because of
the fundamental shifts in Indian as well as
the world economy. The stock market was
affected by lower growth in earnings,
profitability, capital expenditure and
higher debt levels of the corporate. Along
with this, we also experienced a
weakening global economy which further
put a lot of pressure on the emerging
markets.
Given all this background, the short term
outlook about India is negative, but the
medium to long term view is still positive
which gives investors a reason to cheer.
This is an exploratory research in which
we will try to analyse India’s stock market
performance in 2015 and identify the
factors affecting it.
Globaleconomy – Decelerating:
2015 brought the news of a slowdown in
Chinese economy which worried investors
all over the globe. Any such news about
the world’s growth engine was bound to
terrify investors. The impact of the news
was such that NIFTY fell by 5.9% in a
single trading day and the Shanghai
composite index fell 8.5%! Along with
that, the markets of US, London, France
and Germany also fell by 6%, 6%, 5.5%
and 4.96% respectively. Devaluing
currency, government’s interference in the
stock markets, excessive capital
investments over the years resulting in
increasing gap between demand & supply,
reduction in domestic as well as global
demand were some of the factors which
impacted the Chinese economy.
With falling commodity prices, the
troubled European Union economies
failing to show a good rebound and the
recovering US economy trying to stimulate
demand, the global economic growth
slowed to 2.4% acc to World Bank
estimates.
India– Theoutlier:
India has finally overtaken China to be the
fastest growing economy in the world.
Here, we will analyse the performance of
India’s stock benchmark CNX NIFTY and
try to find out the reasons for its poor
performance in 2015.
Corporate earnings:
Exhibits 1, 2 and 3 show us the overall
sales and profitability reports of Indian
corporates. Corporates performed well in
the 1st quarter of 2015 and this was the
time when NIFTY rallied around 8.2% to
8925 but it was followed by a sharp
correction which brought it back to 8350
levels. The subsequent quarters showed
deteriorating sales and profit growth which
was also reflected in the mood of the
market as it remained in a downtrend after
mid-April.
Sectoralperformance:
The auto sector (Exhibit 4) seems to have
benefitted from the dwindling commodity
prices which have brought down the Raw
material cost to 69.3% of sales and the
EBITDA margins also improved
dramatically.
3. The capital goods sector (Exhibit 5)
continues to show signs of weakness from
2013 with no significant improvement in
revenues.
The cement industry (Exhibit 6) is
affected by low sales growth as well as
declining margins. The first half of FY 15
generated hopes of growth but the second
half was impacted by a slowdown and the
government reducing its expenditure.
The consumer goods sector (Exhibit 7)
also disappointed in 2015 with its
decreasing sales growth. However, the
EBITDA margins showed a consistent
increase which could be attributed to
reduction in raw material prices.
Exhibit 8 shows the declining performance
of the top-tier technology companies.
This sector is highly dependent of foreign
countries and the depreciating rupee
however supported this sector.
The private banks (Exhibit 9) could
improve their net operating incomes but
that wasn’t enough to sustain their
previous growth rate in PAT. While the
public banks on the other hand were
greatly troubled by their rapidly increasing
NPAs.
Exhibit 10 gives us the sectoral
performance for the year 2015 which gives
Telecom, Healthcare, Private banks,
Capital goods and Cement to be the best
performers despite the macroeconomic
difficulties.
PE ratio:
We have seen Nifty’s PE ratio (Exhibit
11) dropping from 22 to 11.62 in 2004,
then touching an all time high of 28.29 at
the end of 2007. The all time high was
very soon followed by an all time low of
11.96 in January 2009 due to the global
financial crisis. From 2012 to 2014,
NIFTY’s PE ratio moved roughly between
16.25 and 19.5 and the momentum to
break this range was built in beginning of
2014. From Feb 2014 till Jan 2015, NIFTY
showed an increase of about 50%! This
could clearly be attributed to the high
investor expectations from the governemnt
and the bullish sentiment around the same.
But the fundamentals didn’t change much
in such a short time since the government
didn’t have a magic wand which would
have solved all problems instantly. So the
NIFTY PE touched the 24 level in March
after which the news of Fed rate hike,
China cutting reserve requirement ratio for
banks, deficient monsoon, Chinese
slowdown and Yuan devaluation started
pulling down the ratio which has now
come to 18.5 level. Some of the prominent
events are covered in chronological order
in Exhibit 13(a)&13(b).
FIIs:
Exhibit 12 shows us that even the foreign
instituional investors were losing interest
in the Indian markets after the first quarter
of 2015. The net inflows reduced
significantly in the subsequent quarters.
This outflow of funds can be attributed to
global slowdown in general. Further fall in
crude oil prices have had a significant
impact on outflows of funds. Earlier
Middle east economies were investing
their surplus into India but as the slump in
oil prices started their margin became very
less and now they have started to pull out
their earlier investment from indian
economy.
Indiaremainsa good investment
destination:
According to World Bank’s latest forecast
till date, India will continue to be the
4. fastest growing economy in 2016 with a
growth rate of 7.8% in FY2016. IMF has
similar views about India but with a lower
GDP forecast of 7.5% amid global
slowdown. Globally, both developed and
developing economies are resorting to
lowering interest rates and easy monetary
policies to stimulate growth. On the other
hand, RBI is focussing on prudent policies
for maintaining high interest rates while at
the same time managing inflation and
growth.
Also, the savings of Indian households are
increasingly being invested in financial
assets like insurance, equity and mutual
funds rather than assets like gold and real
estate which seem to be the favourite asset
classes among Indian households. The
mutual funds net inflows have reverted to
levels similar to that in the 2008 bull
market which is a good sign for the
economy.
The government initiatives like Make in
India, Digital India, Swatch Bharat,
Indradhanush, UDAY, MUDRA, National
Skill Development Mission etc along with
large investments in infrasturcture projects
and agricultural reforms is likely to
address the existing problems and further
enhance economic growth.
India’s foreign exchange reserves are also
at its peak which would enable the RBI to
rein in volatility.
However, a depreciating rupee, 3.2% YoY
decline in IIP for the first time in 13
months and declining exports for 13
consecutive months are some challenges
which need to be addressed
Conclusions:
The stock market showed a poor
perormance in calendar year 2015 and we
still have challenges such as global
slowdown, weakening exports & rupee,
banking NPAs, power discom debts etc.
However, we expect a better stock market
performance in 2016 with the
improvement of India’s economy due to
the various structural reforms being
undertaken by the government for
country’s growth and also to address the
various challenges. Overall, the investors
still have a positive medium and long term
view about India.
References:
http://www.theguardian.com/business/201
5/nov/14/global-economy-slowing-down-
recession-or-protectionism
http://www.economist.com/news/economi
c-and-financial-indicators/21654018-
world-gdp
http://www.bbc.com/news/business-
34038147
http://www.bbc.com/news/business-
34038147
http://www.worldbank.org/en/publication/
global-economic-prospects
http://dupress.com/periodical/global-
economic-outlook/q2-2015/
http://www.worldbank.org/en/publication/
global-economic-prospects
http://dupress.com/periodical/global-
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http://blogs.wsj.com/indiarealtime/2016/01
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heavy-weather-world-bank-says/
http://www.livemint.com/Money/lNYPw7
NkjZHDP6nmMwqcmM/Household-
savings-are-finally-shifting-from-physical-
to-fina.html
