The year 2016 began on a weak note that led the benchmark Nifty index to fall below 7,000
levels, almost 22% drop since March 2015 due to sluggish global economy and plunging
Although selling was witnessed across the board, the worst being PSU banks (~29% fall) and
Realty (~24%). The sell-off in PSU banks was primarily triggered due to RBI acting tough on
NPAs resulting in higher provisioning, impacting their bottom line. However, defensive
sectors such as FMCG, IT and Pharma corrected relatively much lower by 9%, 6% and 7%
Pessimism about growth in the global economy especially after the China debacle (including
Yuan devaluation) resulted in concerns related to emerging market economies. This was
further spooked by the Fed raising interest rates and negative interest rates policy in
Sweden, Switzerland, Eurozone and Japan to counter deflationary pressures. The Chinese
market also hit the circuit breakers in the beginning of 2016 while bank stocks in Europe
have been witnessing heavy selling pressure. Moreover with oil hovering at its lowest level
in a decade (~$30 per barrel), allocation of sovereign funds from the oil-rich countries went
down leading to FIIs withdrawing funds from India. Oil is likely to remain down as supply will
increase with sanctions being lifted on Iran.
The drop in crude price has benefitted our country which has to import majority of its crude
requirement. As per estimates, India’s current account deficit for FY16 is likely to be around
0.7% of GDP, well below 1.3% in FY15, aided by lower commodity prices.
The forthcoming budget session is very significant in deciding the course of the market. All
eyes are on the fiscal deficit target, whether it will be relaxed from the previously
mentioned target of 3.5% of GDP in FY17 to propel growth. The government’s focus on
infrastructure spending, passage of the GST bill and bankruptcy law, would have an impact
on the market.
While implementation of One Rank One Pension (OROP) and 7th Pay Commission would
increase the disposable income benefiting the auto & FMCG sector, it is to be seen how the
government plans to mop up additional revenues to fund the same.
In this backdrop, we follow stock specific approach with a view of long term buy and hold.
Currently, the top 15 stocks constitute more than 42% of the portfolio is skewed towards
defensives – IT, Pharma and FMCG (16.93%) and Auto (5.56%) and the rest being in Banks
and Finance. This is not to say that the sector rotation would not be pursued in the current
year as there is a probability of the under owned sectors viz. cyclical and infrastructure
showing promise in the years to come.
It is our belief and conviction that the portfolio is designed to deliver superior returns over a
longer term horizon in the realm of 5 years and beyond as the stocks and sectors are clear
market and segment leaders offering sustainable and reasonable returns from their
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and forces affecting the securities market. There can be no assurance that Scheme's investment objective will be achieved. The past performance of
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