Fin-O-Buzz_Team3
- 1. SIMSREE Ashwani Pushkar (ashwani.pushkar@gmail.com) Gaurav Jain (gaurav.jain@simsree.net) NIFTY analysis for year 2015
- 2. Introduction: India’s stock benchmark CNX NIFTY delivered negative returns for the year 2015. The streak of positive returns from 2012 is finally broken in 2015 with a return of -3.86%. This was still better than the 2011s negative return of 24.62% but the investors are still worried because of the fundamental shifts in Indian as well as the world economy. The stock market was affected by lower growth in earnings, profitability, capital expenditure and higher debt levels of the corporate. Along with this, we also experienced a weakening global economy which further put a lot of pressure on the emerging markets. Given all this background, the short term outlook about India is negative, but the medium to long term view is still positive which gives investors a reason to cheer. This is an exploratory research in which we will try to analyse India’s stock market performance in 2015 and identify the factors affecting it. Globaleconomy – Decelerating: 2015 brought the news of a slowdown in Chinese economy which worried investors all over the globe. Any such news about the world’s growth engine was bound to terrify investors. The impact of the news was such that NIFTY fell by 5.9% in a single trading day and the Shanghai composite index fell 8.5%! Along with that, the markets of US, London, France and Germany also fell by 6%, 6%, 5.5% and 4.96% respectively. Devaluing currency, government’s interference in the stock markets, excessive capital investments over the years resulting in increasing gap between demand & supply, reduction in domestic as well as global demand were some of the factors which impacted the Chinese economy. With falling commodity prices, the troubled European Union economies failing to show a good rebound and the recovering US economy trying to stimulate demand, the global economic growth slowed to 2.4% acc to World Bank estimates. India– Theoutlier: India has finally overtaken China to be the fastest growing economy in the world. Here, we will analyse the performance of India’s stock benchmark CNX NIFTY and try to find out the reasons for its poor performance in 2015. Corporate earnings: Exhibits 1, 2 and 3 show us the overall sales and profitability reports of Indian corporates. Corporates performed well in the 1st quarter of 2015 and this was the time when NIFTY rallied around 8.2% to 8925 but it was followed by a sharp correction which brought it back to 8350 levels. The subsequent quarters showed deteriorating sales and profit growth which was also reflected in the mood of the market as it remained in a downtrend after mid-April. Sectoralperformance: The auto sector (Exhibit 4) seems to have benefitted from the dwindling commodity prices which have brought down the Raw material cost to 69.3% of sales and the EBITDA margins also improved dramatically.
- 3. The capital goods sector (Exhibit 5) continues to show signs of weakness from 2013 with no significant improvement in revenues. The cement industry (Exhibit 6) is affected by low sales growth as well as declining margins. The first half of FY 15 generated hopes of growth but the second half was impacted by a slowdown and the government reducing its expenditure. The consumer goods sector (Exhibit 7) also disappointed in 2015 with its decreasing sales growth. However, the EBITDA margins showed a consistent increase which could be attributed to reduction in raw material prices. Exhibit 8 shows the declining performance of the top-tier technology companies. This sector is highly dependent of foreign countries and the depreciating rupee however supported this sector. The private banks (Exhibit 9) could improve their net operating incomes but that wasn’t enough to sustain their previous growth rate in PAT. While the public banks on the other hand were greatly troubled by their rapidly increasing NPAs. Exhibit 10 gives us the sectoral performance for the year 2015 which gives Telecom, Healthcare, Private banks, Capital goods and Cement to be the best performers despite the macroeconomic difficulties. PE ratio: We have seen Nifty’s PE ratio (Exhibit 11) dropping from 22 to 11.62 in 2004, then touching an all time high of 28.29 at the end of 2007. The all time high was very soon followed by an all time low of 11.96 in January 2009 due to the global financial crisis. From 2012 to 2014, NIFTY’s PE ratio moved roughly between 16.25 and 19.5 and the momentum to break this range was built in beginning of 2014. From Feb 2014 till Jan 2015, NIFTY showed an increase of about 50%! This could clearly be attributed to the high investor expectations from the governemnt and the bullish sentiment around the same. But the fundamentals didn’t change much in such a short time since the government didn’t have a magic wand which would have solved all problems instantly. So the NIFTY PE touched the 24 level in March after which the news of Fed rate hike, China cutting reserve requirement ratio for banks, deficient monsoon, Chinese slowdown and Yuan devaluation started pulling down the ratio which has now come to 18.5 level. Some of the prominent events are covered in chronological order in Exhibit 13(a)&13(b). FIIs: Exhibit 12 shows us that even the foreign instituional investors were losing interest in the Indian markets after the first quarter of 2015. The net inflows reduced significantly in the subsequent quarters. This outflow of funds can be attributed to global slowdown in general. Further fall in crude oil prices have had a significant impact on outflows of funds. Earlier Middle east economies were investing their surplus into India but as the slump in oil prices started their margin became very less and now they have started to pull out their earlier investment from indian economy. Indiaremainsa good investment destination: According to World Bank’s latest forecast till date, India will continue to be the
- 4. fastest growing economy in 2016 with a growth rate of 7.8% in FY2016. IMF has similar views about India but with a lower GDP forecast of 7.5% amid global slowdown. Globally, both developed and developing economies are resorting to lowering interest rates and easy monetary policies to stimulate growth. On the other hand, RBI is focussing on prudent policies for maintaining high interest rates while at the same time managing inflation and growth. Also, the savings of Indian households are increasingly being invested in financial assets like insurance, equity and mutual funds rather than assets like gold and real estate which seem to be the favourite asset classes among Indian households. The mutual funds net inflows have reverted to levels similar to that in the 2008 bull market which is a good sign for the economy. The government initiatives like Make in India, Digital India, Swatch Bharat, Indradhanush, UDAY, MUDRA, National Skill Development Mission etc along with large investments in infrasturcture projects and agricultural reforms is likely to address the existing problems and further enhance economic growth. India’s foreign exchange reserves are also at its peak which would enable the RBI to rein in volatility. However, a depreciating rupee, 3.2% YoY decline in IIP for the first time in 13 months and declining exports for 13 consecutive months are some challenges which need to be addressed Conclusions: The stock market showed a poor perormance in calendar year 2015 and we still have challenges such as global slowdown, weakening exports & rupee, banking NPAs, power discom debts etc. However, we expect a better stock market performance in 2016 with the improvement of India’s economy due to the various structural reforms being undertaken by the government for country’s growth and also to address the various challenges. Overall, the investors still have a positive medium and long term view about India. References: http://www.theguardian.com/business/201 5/nov/14/global-economy-slowing-down- recession-or-protectionism http://www.economist.com/news/economi c-and-financial-indicators/21654018- world-gdp http://www.bbc.com/news/business- 34038147 http://www.bbc.com/news/business- 34038147 http://www.worldbank.org/en/publication/ global-economic-prospects http://dupress.com/periodical/global- economic-outlook/q2-2015/ http://www.worldbank.org/en/publication/ global-economic-prospects http://dupress.com/periodical/global- economic-outlook/q2-2015/ http://blogs.wsj.com/indiarealtime/2016/01 /08/india-sheltered-from-global-economic- heavy-weather-world-bank-says/ http://www.livemint.com/Money/lNYPw7 NkjZHDP6nmMwqcmM/Household- savings-are-finally-shifting-from-physical- to-fina.html
- 5. Annexure (Exhibits) (Note:Source of Data for graphshave beenmentionedwhile graphsandchartshave beenprepared by authors)
- 6. -10 -5 0 5 10 15 20 25 30 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 Exhibit 1 - Nifty sales growth (YoY%) -5 0 5 10 15 20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 Exhibit 2 - Nifty EBITDA growth (YoY%) -10 -5 0 5 10 15 20 25 30 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 Exhibit 3 - Nifty PATgrowth (YoY%) Data source:moneycontrol.com Data source:moneycontrol.com Data source:moneycontrol.com
- 7. 11.1 10.1 9.7 10.5 10.1 9.5 8.8 9.8 10 10.4 9.5 8.6 9.7 10.1 9.3 11 73.4 73.8 74 74.4 73.2 74 74.6 72 71.7 70.7 72 72.7 71.4 71.5 71.4 69.3 8 8.5 9 9.5 10 10.5 11 11.5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 66 67 68 69 70 71 72 73 74 75 Exhibit 4 - Auto sector EBITDA Margin (%) RMCost (% of sales) -15 -10 -5 0 5 10 15 20 25 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 Exhibit 5 - Capital goods sector Revenue growth (%) 4 9.4 10.4 13.8 8.4 2.7 1.9 -2 0.4 3.3 1.5 6.1 9.1 5.3 4.4 -4 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 -10 -8 -6 -4 -2 0 2 4 6 8 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 Exhibit 6 - Cement sector Margin change (%) Volume growth (%) Data source:moneycontrol.com Data source:moneycontrol.com Data source:moneycontrol.com
- 8. 19.3 20.3 15 16.7 16.4 13.6 10.3 10.3 11 11.1 14.6 12.3 7.8 6.6 20.2 19.8 20.5 20.5 21.1 20.2 21 21.2 21.2 20.4 20.5 21.3 21.6 21.3 18.5 19 19.5 20 20.5 21 21.5 22 0 5 10 15 20 25 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 Exhibit 7 - Consumer goods sector Sales growth (%) EBITDA margins (%) 36500 37000 37500 38000 38500 39000 39500 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2015 Exhibit 8 - Top tier technology companies revenue(in million USD) Data source:moneycontrol.com Data source:moneycontrol.com Data source:moneycontrol.com 18.6 17.3 17.8 23.8 28 27 24.5 23.6 23.9 20.4 17.8 15.6 15.8 18.9 18.9 19.1 31 28 27 29 30 27 28 25 26 22 17 17 18 19 19 14 0 5 10 15 20 25 30 35 10 12 14 16 18 20 22 24 26 28 30 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 Exhibit 9 - Private banks NII growth (%) PAT growth rate (%)
- 9. 16 15 10 9 8 3 2 1 -1 -1 -1 -3 -10 -12 -15 -17 -12 -7 -2 3 8 13 18 Exhibit 10 - Sectoral performance for 2015 (%) 10 12 14 16 18 20 22 24 26 28 30 Exhibit 11 - NIFTYP/E ratio -35,000.00 -27,500.00 -20,000.00 -12,500.00 -5,000.00 2,500.00 10,000.00 17,500.00 25,000.00 Jan/12 Mar/12 May/12 Jul/12 Sep/12 Nov/12 Jan/13 Mar/13 May/13 Jul/13 Sep/13 Nov/13 Jan/14 Mar/14 May/14 Jul/14 Sep/14 Nov/14 Jan/15 Mar/15 May/15 Jul/15 Sep/15 Nov/15 Jan/16 Mar/16 Exhibit 12- Net FII Inflows/Outflows Net Equity Net Debt Data source:moneycontrol.com Data source:nseindia.com Data source:moneycontrol.com
- 10. Exhibit (13a) - Variation in Nifty & Key events (Jan 2015-May 2015) Exhibit (13b) - Variation in Nifty & Key events (Jul 2015-Dec 2015)