Equity market investment has given excellent returns for 2014: Both Nifty and the Sensex gave returns of 32% in 2014 (Nifty moved from 6300 levels to around 8300 levels at the close of the year after scaling a high of 8600. The broader markets represented by Mid-cap and Small-cap indices have given even better returns between 52-55% during the year. Other asset classes viz. Gold and Real estate have either stagnated or have given negative returns during 2014. It has clearly been a year of the Bull in the equity markets. Small investors have returned to the equity markets as reflected in the surge in AUMs of Mutual Funds.
Most equity market participants are upbeat about the prospects of the equity markets during 2015, but concerns remains on the economic front. So far the markets have been riding on the 'Modi euphoria' but things have not changed much on the ground level. The sluggish GDP growth coupled with contraction in manufacturing during October 2014 is ringing alarm bells for the economy. GDP growth is suspected to slip further during the 3rd & 4th quarters of fiscal 2014-15, as agricultural growth slows. GDP growth in Q1 & Q2 has large contributions from Agriculture and Service sectors which may not sustain going forward. But the main concern comes from the manufacturing sector, the capital goods sector continues to contract reflecting sustained weakness in investment demand. A tepid growth in bank credit is also a major cause for concern. On the revenue front the Govt. struggles with its finances with a tax collection shortfall of Rs 1.05cr. from budget estimation. this may lead to further slashing of expenditure from the Govt. leading to further slowdown in the economy. This is despite the windfall saving the govt. has made with the unexpected fall in crude oil prices. There is a danger of GDP slipping to 5% or below during Q3. A depreciating Indian rupee also poses a threat to sustained FII inflows. Global concerns of a slowdown in Europe remain, with a few economies still tottering on the brink of default. We can expect a few negative surprises on this front too.
All the above factors combined together pose a serious threat to the equity indices in the short term. Although the long term Bull run may seem intact investors should not look for fireworks in the equity market in the first six months of the New year 2015. The coming year may not be able to match the returns investors garnered from equity investment in 2014. Investors are advised to be cautious while making new investments at higher levels as the equity markets are likely to stagnate in the broader range of 7800-8500 on the Nifty during the first half of 2015. We can expect a turnaround in the second half if the Govt. is able to revive the investment cycle with a support from the opposition on the political front. However, this seems a tall order for now. My advise would be to invest judiciously in 2015, using the declines in markets for infusion of fresh funds. Wishing all investors 'Happy investing' in 2015.
