Conversations with Arun Thukral, MD & CEO - Axis Securities
Dec 31, 2015
2015 has been a disappointing year, markets corrected by 5% over the year. Failed monsoons, correcting crude & commodity prices, disappointing corporate results, slow progress in policy reforms are few reasons for market weakness. 2015 will go in history as a year of lost earnings with Sensex EPS almost flat- draggers being Oil & Gas, Metals for obvious reasons.
However, all was not lost in 2015 - inflation both CPI & WPI was brought under control, interest rates witnessed 125 bps cut, gross tax collection was on rising trend, subsidy burden has fallen & there has been sharp correction in crude, commodity prices.
Let’s us now crystal gaze at 2016. US economy is strengthening; EU & Japan are stabilizing while the crude oil dependent economies are struggling to work out their economies in face of drop in crude prices. Back home, the Parliament has not been functioning for last 2 sessions, the much awaited GST has been pushed to monsoon session by when the NDA would have gained strength in upper house.
Budget FY17 would be the next big event that market will look upto. Having utilized last 2 years to repair the national balance sheet/ steer the economy & improve macro, the next Budget is expected to focus on “Make in India” initiatives to attract industries, to address the yet to be tackled job creation issue. Another important legislation- Bankruptcy bill is expected to be discussed in Budget session. If cleared by the Parliament, it will enhance India’s position in ease of doing business- another step in making “Make in India” a reality.
Last 2 monsoons have failed due to the occurrence of El-Nino phenomenon over the Pacific Ocean. An exactly opposite weather pattern viz., La Nina is being forecasted for 2016 which if happens will lead to good monsoon & hence, a bountiful harvest. Back-to-back failures in monsoon have been a crucial reason for sluggish rural consumption in 2015. If it rains sufficiently & the subsequent harvest is good, the rural consumption will prop up. The Seventh Pay commission will be implemented in 2016 thus accelerating the consumption drive especially in urban pockets of the country. If both the rural & urban consumption picks up (together or one followed by another) due to the reasons mentioned, the concomitant demand pickup will push for recovery in capital investment in subsequent years further driving the economy. Hence, we see 2016 playing a crucial role in GDP growth of the economy.
2016/FY17 is expected to be the inflection point when the consumption led recovery (both rural & urban) will coincide with the rise in strength of ruling party in RS facilitating the passage of important reforms. These factors will be principal driver for the economic growth & hence, the markets. One should take this opportunity to invest in fundamentally strong companies backed with proven management..