It's not every day you get a chance to meet Uday Kotak and 10 days back when my colleague and I met the executive vice chairman and managing director of Kotak Mahindra Bank we couldn't end our 30 minutes conversation without asking about his view on the Indian market. His initial reaction was he goes into 2016 with a conservative mindset watching situation closely and cautiously as to what happens in US, in China and what happens to oil producing nation. His fear is there is some accident waiting to happen. For instance with US corporate bond spreads increasing he feels there could be a credit accident globally or in very large company. "There are many known (unknowns) and unknown unknowns. I will be careful in the coming six months," says Kotak. However from a five years view he feels it is a great time to be in India and build businesses and currently he likes only two countries in the world, first the US and second India.
Meanwhile last week 0.51 per cent devaluation of the Yuan in a single day has been the lowest since March 2011 is certainly a cause of concerns for India and across the markets over the globe, but on the positive side the fall in oil prices has been big plus for India which has got a yearly $70-80 billion bonanza. It has to be seen how India uses the fall in oil prices. Markets will closely watch the budget and government spending. With poor monsoon for two consecutive years the rural sector isn't spending and the private sector is also on the back-foot due to the leveraged bets corporates had taken in 2008 in sectors like power and roads and infrastructure isn't working out. In this scenario government is the only entity that will be able to spend money due to the huge fall in oil prices. In short government spending will determine which sector and companies will do well. The other trigger for the market could be the reform process of the government and passage of reform bills including GST. The other event to watch will be the monsoon and finally the corporate earnings recovery and in turn profitability of corporate India which would shape up the equity market in 2016.
The current week will also be watched carefully with heavyweights like Reliance Industries, Infosys Technologies, TCS and Hindustan Unilever all declaring their December 2015 ended corporate results this week. The market will closely watch IIP data for November 2015 and CPI data for December 2015 which would be unveiled on Tuesday, January 12, 2016. For October 2015, the IIP was at 60-month high at 9.8 per cent, while CPI was at 5.41 per cent for November 2015. On Thursday, January 14, 2016, the government will release the WPI data for December 2015. For November 2015, WPI stood at negative 1.99 per cent. Same day the Bank of England will also announce its decision on interest rates.
With uncertainty in the global market and lack of immediate trigger in the domestic market investors should tread cautiously in the market. Currently the strategy should be more of capital protection and certainly large caps offers better risk-reward as mid-caps will not be able to sustain the valuation premium. The market will also closely look at the return of the foreign institutional investors (FIIs) and at their portfolio allocation towards India.