Gloomy Outlook

Two years ago, if one had invested Rs 100 in the Sensex, today he could have been left with Rs 97 compared to a gain of Rs 8 even if the money lay in a savings bank account.

Between December 31, 2014, and December 31, 2016, the BSE Sensex lost over 3 per cent of its value. In fact, this is the first time since 2008 that the combined foreign equity and debt investment into India has turned negative. In 2016, FIIs recorded anoutflow of Rs 23,079 crore. While overall equity investments for 2016 remained positive at Rs 20,568 crore, between October and December, FIIs sold equity worth Rs 30,726 crore. While FIIs, the lifeline of the Indian stock market, have continued to sell into 2017, the big question is whether the equity market will make money for investors this year.

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Demonetisation has dampened the market further, and no one is sure when the economy will bounce back. "It will be a difficult year for India and the Indian stock market," says Vijay Singhania, Founder, Trade Smart Online, a discount broking firm, adding: "Brexit, the US Presidential elections and now demonetisation have left us cautiously optimistic about 2017. Investors should expect lower-than-average returns from the equity markets. Key indices could correct 10-15 per cent in 3-6 months if domestic institutional investors sell off."

However, he feels that if the assembly elections favour the BJP, it could be a game changer. "Otherwise markets will remain subdued. I expect the market to end on a positive note, but it will not cross its previous-year highs." Harshad Patwardhan, CIO-Equities, Edelweiss AMC, agrees: "This year the equity market will remain volatile. From an investor's point of view, it will not be a runaway market and they have to be careful when it comes to equity investing. They should be wise in their approach and choose the systematic investment plan (SIP) route to play the market."

The Union Budget, feel experts, will not create ripples in the market. The jury, however, is out on the implementation of general anti avoidance rules (GAAR). While some feel, it would come into effect from April 1 and that could put further pressure on the rupee with FIIs moving away from India, the likes of Singhania do not agree. "I do not see GAAR coming into effect following the ongoing trouble for the government after demonetisation and slowdown in the Indian economy." But concerns over Donald Trump's policies favouring the US economy remains, as it could put pressure on the Indian market, and the rupee could weaken to Rs 70-72 against the dollar.

Since the global financial crisis of 2008, companies listed on the Sensex have recorded 6 per cent growth, against the long-term average of 15-16 per cent. The past two years have not been any better. However, analysts expect an uptick in the second half of 2017 and it could be a good time to invest for 2018.

Says Gurunath Mudlapur, MD and CEO, Atherstone Capital: "It would be better to move out of sectors like auto ancillaries and telecom, and get into infrastructure, especially roads and ports, and realty-related sectors like NBFC, housing finance, cement and construction." While Mudlapur prefers IT due to a weak rupee, Patwardhan of Edelweiss is underweight on IT and pharma due to the overall change in their business dynamics. ~

@MaheshNayak