Stock market: A roller coaster ride for Indian equities

Starting with quick gains of eight per cent in January 2015, the market was buoyant till early March with the benchmark indices hitting new highs - the Sensex touched 30,000 points and the Nifty nudged past 9,000-point intra-day for the first time. Hopes were high that the government would push ahead with needed reforms and a recovery was in the offing for the economy.

However, since then, the markets drifted lower, making lower highs and lower lows - a technical signal indicating a bearish phase. While the Sensex rose 6.7 per cent between January and March, it steadily fell thereafter, with year-to-date losses of 5.6 per cent.

A deficient monsoon, shaky global markets and subdued corporate earnings were key reasons that brought the party to a halt. China witnessed a slowdown, with the country devaluing its currency in a bid to put its economy on the path of recovery. The country's benchmark Shanghai Composite lost about 32 per cent in 16 sessions between June 12 and July 7. (DOWN AMID VOLATILITY)

Also, as the year progressed, it became increasingly clear that the Modi government had not made any headway in effecting key reforms on to land acquisition laws and giving parliamentary nod to the goods and services tax (GST).

After four months of sustained purchases, the global risk-off sentiment spurred foreign investors to pull out money from the Indian market. Foreign portfolio investors (FPIs) turned net sellers in May and June. In August, they pulled out a record Rs 17,200 crore, followed by net sales inthe next three months. The Sensex slid 5.9 per cent in the three months to September, its steepest quarterly loss since 2011. FPI sales were largely to do with the risk-off trade against emerging markets (EM) including India, on worries of the US Fed hiking rates for the first time since 2008.

According to a recent Morgan Stanley report, bank fixed deposits emerged the best performing asset class in India for only the third time in the last fifteen years, outperforming equities, gold and property.

The report further noted that of the three calendar years with negative equity returns in the past decade, 2015 is the only one where mid-caps had outperformed the large-caps in a falling market. "Conventional wisdom suggests that in years of negative returns, mid-caps underperform large-cap stocks, owing to higher pressure on earnings and lower liquidity in the markets," said the note.

Till December 30, 2015, large caps as measured by the Nifty 50 had lost 4.7 per cent, while the Nifty Mid Cap 100 was up 6.2 per cent.

There were some positives though. Domestic institutional investors remained net buyers of Indian shares throughout the year. Mutual funds alone have bought shares worth more than Rs 70,000 crore in the year.

While the US Fed finally raised the benchmark interest rate by 25 basis points in December, putting the uncertainty to rest, it also soothed nerves by indicating further rate hikes would be gradual, leading to a relief rally in markets worldwide, including in India.

Low global commodity prices, especially of crude oil which has fallen to near 11-year lows, helped ease India's budget deficit and wholesale inflation. The Reserve Bank of India reduced repo rates by 125 basis points during the year and succeeded in keeping the rupee relatively stable against the US dollar. At a time when most EM currencies saw a steep erosion in their value, along with India's improving macro indicators helped the country outperform its EM peers.

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