As we come to the end of an amazing year for India to forecast what lies ahead this year is more difficult than it was for the year 2014. The longer term picture is very much intact as I had put in my presentation a few weeks back. However the year 2015 is somewhat difficult to call. Overall markets have behaved as per my expectations over the last three years. At the beginning of 2014 I had forecast a NIFTY LEVEL OF 7654 for the end of December 2014. We have actually ended nearly 600 points higher. However it is pertinent to note that there was no forecast which was above 7200 at that time. Lot of forecasters who were predicting markets to be 5400 by the end of 2014 subsequently revised it to 8000. This is nothing but a mockery of forecasting.
As we enter the year 2015 there are a few things that I can see
-India is a consensus favourite Market with most Emerging Market Funds as well as other investors heavily overweight on India
-The NIFTY FORECAST for the end of 2015 of most people seems to be in the range of 9800-10200 reflecting high optimism
-Inflows in many cases, especially into Equity ETF’s globally are approaching euphoric proportions
-Most risks are getting ignored which include a structural slowdown in global growth, the fallout of currency wars, possibility of renewed crisis of some sort in the Eurozone. Greece & Spain could be flashpoints. Sovereign bond markets are sanguine given ECB backstop.
-Other risks to Funds Flow are a liquidity squeeze due to continued US Dollar strength as well as reduced funds flow due falling crude prices which will impact flows both from Oil rich Sovereign Funds as well as remittances from the Gulf
-The possibility of unprecedented stimulus in Europe as well as increased stimulus in China not having the desired impact due to structural issues. China could emerge as the biggest Global Risk sometime in the future with its huge corporate liabilities that exceed $ 14 Trillion as well as unhedged foreign borrowings that exceed $ 1 Trillion. Any big fall in the Yuan could create significant issues.
-A slower than expected recovery in the Indian economy both due to domestic structural issues and slower export growth. Pressure on CAD as domestic recovery takes place even as the Global Economy falters will also need to be seen.
-The fall in crude prices is an unprecedented stimulus for the Indian Economy. It adds a stimulus of nearly $ 40-$ 50 billion if the low prices sustain. Low commodity prices combined with supply side measures can lead to a period of sustained low inflation for India.
Overall as I see things from the sidelines today one thing is very clear to me, optimism is high and the attention to risks is low. Normally markets will never behave in line with consensus forecasts. They will either far exceed them in returns or be much below. I am still in the process of forming a view on what should 2015 overall look like. But it will not be as good as 2014 is very clear to me. We have gone right through 2014 without any major correction. Infact it has now been 16 months since a 10% correction in the markets.
I believe that 2015 will be a market of two parts. The first 4-5 months will give extremely subdued returns with the possibility of a biggish selloff at some time. The markets will subsequently pick up as the US FED finally starts raising rates and the market take that in their stride. In all probability the Budget will disappoint investors as per what we have seen of the steps from the Finance Ministry till date. However eventually we will see lower interest rates as well as economic recovery. Some government ministries are manned by extremely competent people especially Railways, Defense etc. We should start seeing some traction in these sectors eventually. Lower base of the previous year will also lead to higher growth numbers as we move through 2015. I will write more around the mid of January.
2015 is a year of cautious optimism. Lets hope that the positives play out and the negatives are absorbed. My broad guess would be for market returns in the high single digits or low double digits. However stock specific opportunities will abound and that’s where money will be made.
Best wishes for 2014. I will leave you with a couple of thoughts to carry forward for the year.
“Your success in investing will depend in part on your character and
Guts, and in part on your ability to realize at the height of the ebullience
and the depth of despair alike that this too shall pass.”
– John Bogle
“The stock market is filled with individuals who know the price of
Everything, but the value of nothing.”
– Phillip Fisher