How Indian markets performed in 2016 vis-à-vis world markets:

Before we get into 2017, let’s look back and see how the Indian markets performed in 2016 vis a vis the world markets. Indian indexes were almost flat. While Sensex rose by 2% with respect to 2015 closing levels (from 26160 levels to 26626), NIFTY rose by about 3% . US markets performed much better with S&P 500 rising by 9.5% and Dow Jones going up by 13.4%(double digits), mainly buoyed by Trump victory sentiments, positive growth outlook & Fed rate hike related outlook .European stock markets performed very well with UK’S FTSE defying all expectations after BREXIT with 14% rise , mainly because of Pound devaluation by 30% after Brexit which acted like a stimulus boost . Germany’s DAX rose by 16% while Italy main Index dropped by 10% mainly because of troubled banking sector. Among Asian key indexes, Japan(NIKKEI) was in positive zone (4%) , while Shanghai Index(China)dropped by 12%(mainly because of the growth and exchange stability scare at the start of the year). The top performing indexes were Russian and Brazil ones which went up by 52% and 39%, mainly because of rising commodity price (oil, iron ore etc.)

We witnessed turbulence in almost all markets and economies, especially in the last quarter of the year because of global factors like dollar strengthening, commodities price rise, Fed rate hike related outlook, Trump victory etc. Indian markets also got impacted negatively with FIIs pulling out $4.3 Billion(>29000 crore INR) in last 3 months due to these global factors as well as few domestic factors like demonetization . This outflow of FII money led to Sensex dropping by 8% from its peak of about 29000 in Sep 2016 .Had it not been for domestic investors who ploughed in $4.2 Billion in Indian markets in last 3 months of 2016 , the market could have dropped much more.


How my 2016 model portfolio performed (Top 15 stock picks)

Pl refer to my blog (dated 4th January 2016) where I had mentioned my top 15 stock picks for 2016(model portfolio 2016).My 2016 model portfolio showed a rise of 15% versus 2% rise of Sensex gains(till 4th January 2017). So it beat the Sensex performance handsomely .The 4 top gainers were Yes bank( 65%), Bajaj Finance(48%),Power Grid(35%) and MRF(28%). The top losers were Torrent pharma(-9%), India Bulls Housing Finance(-11%) and Tech Mahindra(-6%).Pl refer to my 2016 portfolio tracker on the Right hand side of the blog to get the details.

2016 Portfolio results tracker, as per the data on 4th Jan 2015
2016 portfolio tracker

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Lets see how my 2015 January model portfolio, 2014 model portfolio & 2013 model portfolio performed in 2016, as per the portfolio tracker on the blog page on 5th January 2016 (Viewed on the right of the blog page) . The 2015 January portfolio had gained 10 %( from Jan 2015 till today) versus -3% of Sensex drop after Jan 2015, hence beat the Sensex with a good margin (alpha). The 2014 January portfolio had gained 68 %( from Jan 2014 till today) versus 25% of Sensex gains after Jan 2014, hence beating the Sensex with a good margin (alpha). ). The 2013 January portfolio had gained 94 %( from Jan 2013 till today) versus 37% of Sensex gains after Jan 2013. Pl prefer to the portfolio trackers for 2015. 2014 and 2013 on the right hand side of the blog to get the details..

model portfolio tracker

My forecast of the Indian markets :

I am a long term investor who focuses on long term trends and projections of the economy/ market and my favorite businesses/stocks. I would not dare to venture into the short term precise Sensex forecast as markets are very unpredictable in short term. This year , Global markets might be as volatile as 2016 , especially the first half of the year due to factors like Fed increasing the interest rates, dollar strengthening , Trump actions/initiatives, commodity price rise, Chinese economy slow down etc. These global factors will definitely have an impact on Indian markets. Domestic factors like demonetization, delayed implementation of GST, 2017 Budget proposals, Government’s execution speed on reforms/ initiatives like Make in India and Digital India, restart of investment cycle and corporate earnings pickup will have an impact on the market levels. Government Infra spending on roads, railways, ports, defense etc. will also play a significant impact. My hunch is that 2017 would see a better market performance, especially in 2nd half of 2017 after economy starts recovering from demonetization impact. Markets after being flat in last 2 years (2015 & 2016) should perform better as per mean reversal phenomenon. We can see a few positive greenshoots in the Indian economy like controlled inflation(@4%) , better fiscal and current deficit, FDI (Foreign direct investment) showing a growth of 35-40% in last few years , likely GST implementation in later part of year, central bank rates/lending rates coming down(SBI and other banks have already reduced their MCLR or lending rates by 0.5% to 0.9% in last few weeks) which might kick start consumption and investment cycle. Moreover the banks are flush with 15 lac crore ($220 Billion) due to demonetization , forcing bond yields & lending rates further down which in turn will motivate consumers as well as corporate entities to take more loans . Besides FIIs would eventually come back to India after pulling back in 2016 as they don’t have too many stable and growing economies in the world.

I would like to repeat that India economy and the market have already started a strong and long term structural bull market in 2014(I had predicted the same in my multiple blogs in 2012 and 2013). There could be small and temporary corrections or fall in the market(like we had in 2nd half of 2015 when Sensex came down from 30000 to 26000 and last quarter In 2016 when Sensex fell from 29000 levels to 26000 level) but the long term trends should be a very positive one for next 15 to 20 years . As far as my long term Sensex prediction is concerned, I am predicting Indian market(Sensex) doubling up every 4 to 5 years for next 16 years which means Sensex multiplying 16 times in 16 years (reaching about 3,80,000 to 4,00,000 by end of 2030). This means that you can multiply your wealth 16 times in 16 years just by investing in Sensex EFT or index funds. If you do a bit of quality stock picking, you can beat this rate and multiply your wealth by 20-30 times by 2030 . This kind of long term wealth creation opportunities can happen only in rare asset classes (like Indian blue chip equities) in the world. The economic and investment cycles have bottomed and will show a sustained long term positive trend from now. The long term impact of demonetization like reduced black money, improved tax compliance, increased digitization/ cashless economy, unorganized and informal economy coming into formal economy will add to the strength of this economic super cycle and market structured long term bull rally. The macro variables have improved a lot with CPI inflation at <5% , Fiscal and Current account deficits under good control, stable government showing positive signs of reforms, stable currency, stable foreign exchange reserves etc .

My 2017 Model Stock portfolio

In summary , the macroeconomic and global factors are uncertain and cloudy which could be creating further volatility . Hence 2017 is going to be a stock picker market and not general market where you can bet on Index and certain sectors in general .Hence the need to have a disciplined bottoms-up approach to research and pick the right business –quality businesses run by quality management with strong balance sheets, earning decent return of capital/ equity(ROE) and good long term growth outlook. As per my tradition in last few years, I am publishing my top 14 stock picks for 2017(model portfolio 2017) in which I am investing now .


My 2017 Portfolio of Top 14 business/ stock picks(stock related data as per 5th Jan 2017) :-

2017 tracker

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The 2017 model portfolio is heavily loaded towards Banking & Finance – (Axis Bank, Yes Bank , Dewan Housing Finance, India Bulls Housing Finance, Bajaj Finance)- Mainly Private banks and Housing Finance/ Consumer NBFC , It also has Auto sector(Apollo tyres, Tata Motors & Maruti ), Infrastructure/ Power sector(J Kumar Infra, Power Grid) , IT sector(HCL and Mind Tree) and Pharma stocks(Torrent and Aurobindo pharma) . These sectors are mostly domestic interest rate sensitive & domestic consumption oriented ones like Banking & Finance, Auto which will do very well as the economy recovers from the negative effects of demonetization or are Global defensives like IT and Pharma which will do well in an envioronment of dollar strengthening and INR devaluation. All these businesses are quality businesses with durable competitive advantage with excellent returns on capital/equity(ROE), strong balance sheet, competent managements and stable growth records/outlook and yet available at under-valued prices due to market correction/over reaction over demonetization, providing a great “margin of safety” for value and long term investors . I have retained majority (10 out of 15)of stocks in 2016 model portfolio while adding 4 new businesses/ stocks. These new businesses are Apollo tyres instead of MRF, Mind Tree instead of Tech Mahindra, Aurobindo Pharma instead of Dr. Reddy and J Kumar Infra instead of REC. The other thing you would notice is that all these companies are blue chip companies (mostly large caps and bigger mid caps with market capitalization of > 5000 Crore). This is for reducing risks associated with small caps and smaller midcaps like corporate governance issues, non-transparency, share price rigging, share pledging by promoters, excessive volatility etc which can make you lose your capital permanently. This market is a long term structural bull rally and therefore any fall or correction would be temporary and should be treated as a good opportunity to invest in quality stocks or businesses for long term with a long term returns of 20-25% per year (on an average)
Wish you a very happy New Year again and Happy investing,
Cheers Amar