Will markets continue the bull run in 2015?

With a rise of around 30 per cent in the benchmark index S&P BSE Sensex, 2014 has been the best year for Indian equity markets since 2009, when the benchmark index surged 81 per cent. 

Mid- and small-cap indices outperformed their larger peers. The S&P BSE Mid-cap index gained 50 per cent and the small-cap index by 66 per cent. 

The Sensex was the second-best performing index globally in calendar year 2014 (CY14), after the Shanghai Composite, which gained nearly 41 per cent.

The year also saw market capitalisation of listed companies on the BSE surpass Rs 100-lakh crore for the first time.

In this backdrop, what does 2015 have in store and what are the key risks?

Analysts remain positive on equities as an asset class and believe India is heading into a period of growth, with macroeconomic stability.

They do not think the markets will be able to replicate the gains seen in 2014. 

While tighter fiscal and monetary policies and a correct growth mix (pro-investment) should gradually correct imbalances, analysts say growth recovery is likely to be gradual, not V-shaped.

According to CLSA, the recovery will be choppy but growth will pick up to 6.5 per cent in FY16 from 5.6 per cent this financial year. 

“We see 2015 as a crucial year in India’s path to economic development and better governance. We expect the government to implement several reforms in fiscal governance and investment, setting the stage for inclusive and sustainable economic growth for several years,” said Sanjeev Prasad, executive director and co-head, Kotak Institutional Equities.

He expects a 15-20 per cent return for the Indian market in CY15. 

Risks

The markets are likely to keep a tab on economic growth, on reforms unveiled in the Union Budget statement or outside of it, Reserve Bank of India’s (RBI’s) action on interest rate; and improvement in corporate earnings.

According to analysts, the US Federal Reserve’s move to raise key rates and economic growth in major economies such as Russia, China, Europe and Japan will be the key global factors to watch in CY15. 

Ridham Desai, managing director and head of India equity research at Morgan Stanley, said the December 2015 Sensex target stands at 32,500.

From a portfolio perspective, he backs cyclical stocks with GARP (growth at a reasonable price) orientation and sectors that could benefit from policy changes. He recommends avoiding high-beta stocks. 

As the US economy is likely to do well, analysts expect the dollar to strengthen in 2015.

“Most global currencies, including the rupee, will depreciate against it. India will still remain in a sweet spot, compared to its emerging market peers despite the likely 2-4 per cent currency depreciation,” said Vaibhav Sanghavi, managing director, Ambit Investment Advisors. 

Sanghavi expects corporate earnings to improve in the second half of CY15 and grow upwards of 20 per cent within the next 18-24 months.

“We are in a bullish phase and if global and domestic factors remain supportive, the markets can rally 20 per cent in CY15. The worst-case scenario is a 10 per cent correction,” he says.