We are now 5 months into 2015 and the Indian Markets have gone up by just around 1.5% in these 5 months in INR terms and are almost flat in US Dollar terms. This, I accept is somewhat better than the scenario I initially thought would play out. However we still have one month to go in the first half of the year which I expected to be tough for the markets as on a broad basis the performance was running well ahead of fundamentals. June could be an interesting month given that we seem to be at the cusp of a global stock market correction and it might be difficult for Indian markets to perform in light of that. However any global sell off is likely to be short-lived as long as the Greek crisis is contained.

The results season has almost come to an end. This was by far one of the worst results season that I have seen in many years. Technology sector companies faced margin headwinds and growth jitters and as such most underperformed expectations. Auto company results were mixed but on a broad basis in line with reduced expectations. Telecom companies outperformed expectations. Most PSU banks reported horrific results with continued pressure on the balance sheet while Private sector banks reported healthy numbers and balance sheet. Industrials showed improved margins and some companies did surprisingly well. Most consumer companies saw a significant slowdown in growth in Sales, however due to lower input costs most showed better margins. On the whole the results season saw more downgrades than upgrades of future earnings.

On the mid cap side of the markets the picture was the same. Some companies that did well were handsomely rewarded with strong stock price moves, however on the whole it was not a great performance. Too many mid caps that are fancied are trading at valuations that are not justifiable by any valuation parameter. On the other hand we do have value picks that are not fancied and as such provide investment opportunities.

I am confident on a good second half performance by Indian Markets; however the month of June could face issues related to

  • A global stock market correction which could impact funds flow. As it is Foreign Investors have been significant sellers in the month of May
  • A peaking of the Greek crisis, before the solution is found. We have seen this play out several times over the last 5 years where brinkmanship takes the shape of last minute resolutions
  • A less than satisfactory progress of the Monsoons which could create short term growth and inflation concerns while having not much of a long term impact

The second half performance of the Indian Markets is likely to be driven by improved macro’s in terms of improving investments and growth numbers starting September 2015 as well as directional moderation of inflation irrespective of a possible spike due to higher food prices if the monsoons fail.  The impact of various government actions on growth will start becoming visible between September 2015 and March 2016.

We have now seen a period of nearly one year when the markets on a point to point basis have not moved up much. As such a silent time wise correction has been on. However results of companies have also disappointed on the downside thus prolonging this entire sideways to corrective move. As I have written earlier, if Rajan cuts rates and moves on improving liquidity on 2nd June we could bottom out more near the lows of 8000 seen on the Nifty, however just a 25 basis point cut might disappoint the markets where expectations are too high and this could create a further 3-5% downside.

In conclusion I believe that we are now at the last stages of a time wise and value wise correction in the Indian markets. The lows seen over the next few weeks are likely to be the lows for the year 2015 and the second half of the year should see decent returns which could be in the form of low double digit gains from the bottom that is made.

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