Anxious Wait For December Quarter Results To Arrive

The new year eve was full of expectations and optimisms from the global investors communities. Though the Indian markets closed with not-so-rosy numbers during last week of December, 2015, investors and markets’ observers hoped for a better beginning of 2016, come January. Things did not work out the way they thought of and the worse arrived when Chinese PMI data was released on January 4 denting even Indian markets and confidence of the investors.

The PMI declined to 48.2 in December in comparison to 48.6 in November while Shanghai Composite declined by 7.36 per cent after the PMI touched its five years’ low. Chinese markets witnessed its worst in the new year and the government had to step in shutting down the markets for the fateful day. Across the globe too, major equity markets showed considerable negative reactions following Chinese dragons’ salvo. Nifty opened in red on the first day of the last week as weak cues from the Chinese market dampened the spirit of the Asian markets and Indian markets were no exception. Nifty closed near day's low with loss of 171 points at 7791 on January 4. Further, the negativity was so intense in Indian markets that the foreign institutional investors (FIIs) have bought record high number of option-puts after Chinese market halted for trading after touching the lower circuit on Monday, January 4, 2016. The immediate global markets’ participants resorted to a steep sell-off on Chinese markets, triggering a 7 per cent circuit-breaker and a surge in crude prices following tensions in West Asia.

Moreover, the Chinese sell-off came over the weak data released that showed sustained shrinking of industrial output in that country. However, the Indian markets are less dependent on Chinese markets on the trade front with the country. On positive front, the falling commodity prices and crude oil prices are beneficial to our markets. Further, the continuing quantitative easing across the major markets will help India to attract considerable number of foreign funds.

The most interesting fact of 2015 remained the underperformance of the largecap companies vis-a-vis midcap companies. Almost more than 75 per cent large cap companies are trading below their five year average price to earnings (PE) ratio. At the same time, more than 55 per cent midcap companies are trading above their five years PE ratio. Interestingly, last year was the first time in last one decade when the midcap companies outperformed the broader markets. Though the foreign institutional investors (FIIs) have bought Indian equities worth of almost Rs 18000 crore, least in last four calendar years, the domestic institutional investors (DIIs) have bought equities of almost Rs 47,000,0 crore during the same year. Hence despite of considerable sell off by FIIs over US Federal Reserve’s interest rate hike, the broader market showed considerable strength with smaller losses during the last one year.

Though the largecap companies are mostly debt laden or commodities business or banking operations feel the pressure, the government’s spending in 2015 will start yielding to overcome the slump in their business over the next few quarters. Hence we see immense opportunity across some quality stocks at their current valuation. However, for the shorter time frame, the market seems to be waiting for December quarter result session.