BackSensex posts best fiscal year gain since 2009-10
The benchmark index, however, posted its worst monthly performance in more than two years in March
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Mumbai: Indian shares posted their biggest fiscal year gain in five, buoyed by a landslide general election victory for the National Democratic Alliance in May 2014 and a sharp drop in crude oil prices, spurring hopes that growth in Asia’s third largest economy will accelerate.
The benchmark Sensex index, however, posted its worst monthly performance in more than two years in March because of a dismal corporate earnings outlook and fears of an interest rate hike in the US later this year, along with some geopolitical tensions in West Asia. The good news is that market participants expect downside risks to be limited.
The 30-share Sensex gained 24.89% in financial year 2014-15, its best show since the year ended 31 March 2010, when it had posted an 80.54% gain. It slipped 4.78% in March, which was its biggest monthly loss since February 2013.
The National Stock Exchange’s 50-share Nifty logged a 26.7% gain in the financial year, the best since 2009, while it dropped 4.62% in March, its worst performance since August 2013.
On Monday, the Sensex closed 0.07% lower at 27,957.49 points, while the Nifty closed nearly unchanged at 8,491 points.
“What worked for the market was continued FII (foreign institutional investor) flows and the return of domestic mutual funds. This helped the market scale new highs. It is pure money power. Earnings (corporate) are yet to recover, but there is an avalanche of money that has come in," said Gautam Trivedi, chief executive of investment banking and institutional equities at Religare Capital Markets Ltd.
Trivedi was optimistic on the prospects of the market, but said it was susceptible to geopolitical tensions.
“The Middle East is in a dangerous state right now, and that has a direct bearing on oil prices, We do not expect any rebound in earnings over the next two-three quarters. FY17 (fiscal year 2017) will be good a year for earnings," added Trivedi.
The Indian rupee lost 4.17% in the year to close at ₹ 62.4975 against the dollar. The yield on 10-year benchmark bond dropped to 7.737% from 8.691%. FIIs invested a record $26.9 billion in Indian debt in the current financial year.
Brent crude shed 46.65% in this financial year and was trading at $55.26 per barrel at 10pm India time.
FIIs have invested a net of $17.9 billion in Indian equities for this financial year, while domestic institutional investors (DIIs), which mainly comprise insurance companies and mutual funds, sold a net of ₹ 22,835.01 crore of the asset class, but such selling was the lowest in three fiscal years.
To be sure, these numbers exclude the transactions in last two sessions of the current financial year, for which data was not yet available.
Only two sectoral indices, the BSE Oil and Gas index and the BSE Metal index, closed the year in the red. The BSE Healthcare index was the top gainer with a 71.4% rise, while the BSE Consumer Goods Index and the BSE Auto index advanced 59.63% and 45.02%, respectively.
Private lender Axis Bank Ltd and car maker Maruti Suzuki India Ltd were the top gainers among Sensex stocks and logged gains of 92% and 88%, respectively, in this fiscal year. Seven of 30 Sensex stocks closed in the negative. Steel maker Tata Steel Ltd was the worst performer with a 19.6% decline.
While the long-term India story remains intact, there are some concerns on the near term performance, though downside risks are not huge.
Macquarie Capital Securities (India) Pvt. Ltd has cut its 2015 Sensex target to 31,600 points from 33,000, in line with an earnings-per-share cut for financial year 2015-16 by 4%, Rakesh Arora, managing director and head of research (India), said in an email on Tuesday.
“The market is in a precarious position and investors appear confused. While India continues to remain an attractive market on a two-three year perspective, there seems to be growing restlessness around the timing (or lack thereof) of policy execution and earnings delivery," Macquarie analysts said in a note on 27 March.
“Though multiples have re-rated, a slow grinding recovery has raised questions around earnings growth, which has remained elusive. The good news is that the street has cut forward earnings estimates by 4-5% and the market now looks devoid of some of the froth that had formed at the top," Macquarie analysts added.
Macquarie said conditions remain ripe for a recovery and it maintains its positive view, and downside risks to the market are limited to 3-4% from here.
“Earnings and macro growth recovery have surprised market negatively, and we have had these concerns since last year. However, the rate cycle will still surprise market positively. We still maintain a positive outlook on macroeconomic factors," said Gautam Chhaochharia, head of research at UBS Securities India Pvt. Ltd, adding that he expects the market to consolidate in the near term, but doesn’t see significant downside from here.
“Valuations have been expensive in pockets for a year now. The market looks reasonably valued on an overall basis, though it isn’t cheap either," said Chhaochharia.
According to data from Bloomberg, the benchmark Sensex currently trades at 18.37 times one-year forward price to earnings, compared with a five-year historical average of 15.67 times.
However, it trades at a 49.1% premium to the MSCI Emerging Market Index, which trades at 12.32 times one-year forward earnings.
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