We are at the end of the first quarter of 2015 and it has played out more or less like I thought it should. The NIFTY went up by around 2.5% this quarter. After an initial up move during the month of January the markets cooled off significantly. This was driven by reality of a slow economy and low earnings growth setting into the market.  This has been despite very strong global cues where we have seen most European Markets rise 15% plus and a strong performance by the US and Chinese markets. India to that extent has been an underperforming market. However if we take into account the fact that the INR actually appreciated in a quarter when most currencies sold off big time against the US Dollar in USD terms the performance of the India markets is not as bad.

The current quarter saw outperformance from Telecom, Infrastructure, select Auto and private sector banking stocks. A vast majority of PSU Banking stocks sold off sharply this quarter with the likes of PNB, BOB, Union Bank etc down 30-40%.

Markets look decently poised at this stage. Although there are chances of a further downside of a few percentage points the longer term outlook now looks better with low oil and commodity prices sustaining. The global risks also have moderated with ECB QE and the fears of Greek Exit from Euro zone getting built into the system. However, an actual exit if it happens will create volatility for sure. The Government could finally move ahead with legislative action during this quarter and we have also seen economic activity start in some segments of the economy, although a broad based recovery is still lacking. The Global economy is also slow but no longer decelerating, which is a welcome change from last year.

The pulls on inflation at this point of time are downwards on the commodity and manufacturing side, while food inflation could rear its head up again due to unseasonal rains and if monsoons are below par again. However this is not the base case scenario. The entire benefit of oil price and the follow through fall in prices of oil derivative products is yet to play out and will keep overall inflation low. Iran’s deal with the world powers and easing of sanctions on that country will keep the oil supply strong and prices low for the foreseeable future.

The April Quarter should finally see the impact of RBI easing flowing into the economy. RBI should most likely ease liquidity in some way going forward so that the economy benefits from the interest rate cuts. The government was also holding on to cash in order to meet the 4.1% Fiscal Deficit target (as government accounts are on a cash basis). We should now see significant liquidity release due to Government spending into the system.

The current results season is unlikely to be exciting and we could see specific pressure in PSU Bank results as there will be no trading gains and increased NPA recognition. However now one can be reasonably sure that we are at the peak of the NPA problem and from here we should see a phase of sustained recovery.

The year 2015 will be challenging as I pointed out during the beginning of the year, however there is a realistic possibility that the upside from the markets could play out much stronger in the second half of 2015. I will keep on monitoring and writing on that going forward. We will also identify ideas accordingly.

For the absolute short term RBI’s monetary policy on the 7th of April is quite crucial. RBI needs to take steps for rate cuts to percolate down into the system. Lack of any such measures could create a short term downside.

The next leg of the market up move is likely to be led by Capital Goods, Infrastructure, Banks and Telecom companies. Besides this stock specific opportunities on the mid cap side will be there for sure.


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