Despite facing massive volatility and foreign fund outflows, the Indian equities markets managed to make gains during 2016 mainly on account of a fall in lending rates, further economic reforms, lower inflation and a healthy monsoon….’ 2016 In Retrospect’ by Porisma P. Gogoi and Rohit Vaid
Demonetisation caused an initial hiccup but the effect soon tapered off
The two key indices closed between 1.95 per cent and three per cent higher, with nearly a third of the gains coming on the last few days of trading.
The 30-scrip Sensitive Index (Sensex) of the S&P BSE gained 1.95 per cent compared to a loss of five per cent in 2015.
The wider 51-scrip Nifty of the NSE rose by 3.01 per cent compared to a loss of 4.1 per cent in 2015.
The BSE Sensex closed 2016 at 26,626.46 points on Friday from 26,117.54 points as on December 31 last year. The barometer index touched a high of 29,077.28 points on September 8 and a low of 22,494.61 on February 29.
The wider NSE Nifty, which had closed last year at 7,946.35 points, ended 2016 at 8,185.80 points. It touched a high of 8,968.7 points on September 7 and a low of 6,825.8 points on February 29.
“The year 2016 began promisingly in comparison to 2015, but the ending has been a little different,” said D.K. Aggarwal, Chairman and Managing Director, SMC Investments and Advisors, a leading brokerage and financial advisory.
“The year was also one of the most volatile for domestic stock markets after the post-budget rally and a combination of domestic and global factors,” Aggarwal told IANS.
However, the Sensex was amongst the worst performing benchmarks among the BRICS nations only after China’s Shanghai Composite Index, which plunged by 12.31 per cent during the year.
Brazil’s bellwether IBOVESPA index was the best performing with a growth of 38.93 per cent, while Russia’s MICEX benchmark gained 26.09 per cent.
In terms of positives, the year witnessed the successful implementation of the Seventh Pay Commission’s recommendations, a good monsoon and a plunge in inflation rates.
“Among positives, 2016 witnessed a prudent Union Budget, bountiful monsoon, fall in inflation and interest rates and payouts thanks to the Seventh Pay Commission which helped consumption spending,” Deepak Jasani, Head – Retail Research, HDFC Securities, told IANS.
“Greater transparency in the banking space as far as recognition of NPAs (non-performing assets) is concerned and renewed legislative and judicial efforts in preventing the creation of fresh NPAs were the other such positive aspects of 2016.”
The equity markets were, however, struck hard by the central government’s demonetisation move and a slump in the domestic currency.
The rupee depreciated by around 2.6 per cent to 67.93 against a US dollar, as compared to the 2015 closing of 66.19.
Globally, events such as Brexit, Donald Trump’s victory in the US Presidential elections and US Federal Reserve’s rate hikes spooked investors.
“Brexit and the Trump-win were low probability events, while demonetisation came like a bolt from the blue,” Aggarwal elaborated.
Apart from the benchmark indices, small-cap and mid-cap stocks showed resilience in the face of demonetisation, broadly negative global cues and disappointing quarterly results. For the full year, the two BSE indices gained by 1.77 per cent (small-cap) and 7.97 per cent (mid-cap) respectively.
In fact, after the demonetisation move, both the indices had fallen by over six per cent.
“Demonetisation will continue to have a huge impact on the credit-led small-cap stocks, while the frontline companies look stable. Earlier, both the mid and small-cap stocks rose sharply,” Aggarwal pointed-out.
“Throughout the year, mid-cap stocks kept investors’ interest in the market alive and they have enjoyed premium valuations over large-cap stocks. Post demonetisation, even many quality large-cap stocks have corrected and are at present available at reasonable valuations,” he added.
The year marked the emergence of domestic institutional investors (DIIs) as the real saviours of the stock markets despite a substantial outflow of foreign funds.
“During the first six months, there were major inflows by both FIIs (foreign institutional investors) and DIIs,” Dhruv Desai, Director and Chief Operating Officer of Tradebulls, told IANS.
“However, since the last three months, our market is under pressure because of massive outflows of foreign funds. Markets were cushioned by DII’s inflows.”
According to data from the stock markets, the FIIs took out Rs 9,919.97 crore, while domestic investors purchased scrips worth Rs 34,404.73 crore in 2016.
Sector-wise, the S&P BSE metal index was the best performer (36.2 per cent), followed by the basic materials index (30.4 per cent) and oil and gas index (25.9 per cent).
On the flip side, the BSE telecom index declined by 22 per cent, the healthcare index receded by 13.8 per cent and the Teck index fell by 10.1 per cent.
“Among individual stocks that comprise the 30-share Sensex, Tata Steel gained the most by 51 per cent, followed by Power Grid at 27.6 per cent,” Jasani stated.
“At the other end of the spectrum, Sun Pharmaceuticals was the worst performer at 25.1 per cent, followed by Lupin, at 20.1 per cent.”
* Sensex inched up 1.95 per cent
* Nifty rose by 3.01 per cent
* Tata Steel was best performing Sensex stock
* Sun Pharmaceuticals was the worst performing Sensex stock
* Metals was the best performing sector
* Telecom was the worst performing sector
* Mid-cap gained by 7.97 per cent
* Small-cap rose by 1.77 per cent