Amid headwinds such as demonetization, Trump election, US rate hike, Sensex set to end the year on flat note
The markets are set to bid adieu to an eventful 2016 on flat note despite facing several headwinds including Brexit, US rate hike and demonetization during the year.
After wildly swinging between highs and lows, the Sensex is tipped at 26366.15, as of December 29, about 0.78% below its January 1 level.
The street began 2016 on an optimistic note with most brokerages setting year-end Sensex targets at 30000, but tumbled soon after.
This is the second straight lacklustre year for the market after 5.05% decline in Sensex in 2015.
Raamdeo Agrawal, co-founder, Motilal Oswal Financial Services Ltd, told DNA Money, "After rising 30% in 2014 on the back of a new government, markets have stagnated for last two years 2015 as well as 2016. Typically, markets follow broad earnings momentum, which is missing even in 2016."
The Sensex began on a promising note but lost over 3000 points in February as crude price dropped and quarterly earnings lost strength.
"Market trajectory was amply described as 'greed & fear' with February seeing extreme fear on the back of China collapse coupled with metals and oil dropping to $28/bbl. Budget was a game-changer with Indian macro showing strength on the back of the Seventh Pay Commission money; economy revived as fiscal and current account deficits were reduced due to oil weakness. Nifty rose to 8968 in September, up 31% from extreme fear of February 29," Sanjiv Bhasin, executive vice-president of IIFL, said.
The next big jolt came in June with Brexit triggering panic selling across sectors. The Sensex lost 600 points and the Nifty 180 points while stocks of myriad companies along with the ones exposed to the UK market like Tata Motors, Bharat Forge, Infosys, Tata Steel and Tech Mahindra came under the weather.
The Goods and Services Tax (GST) Bill passed by the Rajya Sabha on August 4 was expected to buoy markets but it too failed to push the indices out of a range.
The big trigger came in the announcement of demonetization on November 8 that threw all calculations awry and hit the fortunes of sectors that thrive on cash such as real estate, consumer goods, cement, paint, unsecured lending, building materials and construction services.
However, PSU, banking, utilities and telecom that benefited from demonetization packed in gains.
The shock election of Donald Trump as US president and Federal Reserve rate hike further spiked volatility and saw foreign institutional investors (FIIs) rushing to the safety of US treasuries.
FIIs withdrew Rs 30,065 crore from equities in the last three months even as cautious retail investors ran for shelter.
"FII redemption saw Nifty hitting 7896 as fear played out perfectly with liquidity concerns and a slowdown in the economy seeing almost $2.5 billion FII sell-off. If no demonetization had occurred then our local consumption story was looking very good. Also, with the Trump victory, rise in energy and base metals were seeing exporters do very well," Bhasin of IIFL said.
This year was different from 2015 with big reforms like GST legislation approval, Brexit, and US elections seeing global markets rally, he said, adding, demonetization, however, played a double whammy as most investors turned overweight on developed markets as rise in oil and strength in US dollar was the best play by 2016-end.
So, what's in store for 2017?
"At this juncture, earnings outlook for Q3 and Q4 FY17 is muted. But there can be a swift recovery in earnings in the latter half of 2017 led by revival in economic growth, both domestic and global," said Raamdeo Agrawal.
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