Market Outlook for 2017

Mr. Vijay Singhania, Founder – Director Trade smart online

“The New Year might see a negative start, and it mightlast for a few months. Political uncertainty following Brexit and post- USPresidential election and the demonetisation, we're cautiously optimistic aboutthe year ahead. We suggest that investors should expect lower-than-averagereturns in the equity markets going into 2017. Key indices could correct by10-15 percent in 3-6 months if domestic institutional investors (DIIs) selloff. December 2016 is turning out to be the worst month in terms of sell-offfrom global funds. But we expect things would start to improve in the secondhalf of this year (2HCY-17) fundamentally.  

Post demonetisation, a new fear-factor has emerged inthe market amongst the investors. Earnings growth for the next one-two quartersshould be little tough from an economy perspective. We expect a fall in cementoff take, in automobile, in textiles, in gems and jewellery, retail footfalls.The big liquidity crunch in the economy, that’s having an impact. Earningsgrowth in 2016-17 (FY17) will only be around 2-3% because of the very lowearnings growth in the third and fourth quarters.

Above all, there is the movement of money fromemerging markets to developed markets. The situation has become tricky forglobal fund managers, after the election of Donald Trump as US president. 

The fact that President Trump is promising a majorfiscal stimulus in February 2017 is obviously making global investors veryexcited about US markets. So, you have a slowing economy in India, potentiallywith more slowing growth to come, we have a banking sector which is a third ofyour stock market cap and the other side of the world you have the world’slargest economy now accelerating. We think the FII outflows to continue. 

At the moment domestic institutional investors areholding the market, but if that support goes away, we have got meaningfulmarket downside in the near term. 

High valuation is another problem plaguing sectorswith a domestic focus. Valuations had gone up without much earnings growth, sothey may come down. Export-oriented sectors will also be a big beneficiary ofthe expected depreciation in the Indian rupee (because of a strengtheningdollar). The dollar may go up to Rs 70-72 levels, which will help export-drivensectors to register push 15% CAGR in earnings over next two years.

We expect 2017 will start the year in a bearish way.Basic chart reading reveals a long term pattern with very strong support at7500 points. Worst case, Nifty index will fall to that level, which stillvalidates a bull market scenario.  In case of any major weakness in Nifty,the fall is likely to halt around 7400-7500 levels. Since 2009, in all panicscenarios, Nifty has been finding support at these levels in the past three tofour years. We do not see Nifty even visiting these levels, but in case it doesand it should recover much higher from these levels. Pharma and IT in thatorder will be best bets in uncertain times if someone has investment view ofless than one year. City Gas distribution companies will keep doing well in thewake of rising crude prices and also increasing focus on green energy”. 

In the last two years, the annual closing has been tothe downside or almost flat.  Nifty in 2014 closed at was 8174 and in 2015end it was 7946.  The ending of 2016 does not look promising.  TheP/E level has also been flat during the last three years. During these threeyears Nifty witnessed the strong resistance at 9,000 levels on the upper sidein the coming year, which also looks difficult to cross in the currentscenario”.

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