Budget To Budget, Market Completes A Year In Bear-grip

In a down slide that began days after the presentation of Budget 2015, Indian stocks lost 22.7 percent since the Sensex peaked on March 3, 2015 at 30024.74 points marking a tippling point in investor fortunes.

Over 200 stocks are hitting 52 week lows regularly across counters as investors find liquidity squeezing and stock bids getting thinner. Most stocks are also hitting lower price circuit filters. The 52-week high list is less than one page on the BSE website with barely 12 stocks making new highs on Friday 27, 2016, while the 52 week low list runs into tens of pages.

Contrast this just three months ago when the 52-week high list was seeing more than 100 stocks hit fresh yearly highs almost every other day, even as new stocks - many of them unheard names - featured more than often.

More indicators on how the market could fare in the coming weeks could be gotten from past time periods of Indian bear markets. On average, they have lingered for 60 weeks. The longest one dragged stocks down for 83 weeks after the dot com crash back in 2000. So history suggests this one will probably be over in the next two to seven months.

But the cues coming from the big foreign players have yet to show signs of a revival. Foreign investors continue to press the sales button as the global markets are reeling under a China slowdown even while oil hovers at $30 a barrel. In the past month, the Sensex tumbled seven percent. The rupee is near its all-time low of Rs 68.85 to the dollar hit in August 2013. The global economies are not showing signs of stabilising. So, it's not likely to be spring in the next few months, but a hot tough hot summer.

That puts the spotlight on Budget 2016. Investors will be watching signs of an uptick in government capital expenditures, at the same time looking for a tight fiscal stance. A lower fiscal deficit will pave the way for a reduction in interest rates which can help consolidate the Indian economy to face a global slowdown.

The Economic Surveys sees the Indian markets clocking a growth of 7-7.5 percent in FY17, but there are downside risks due to a slowing global economy. The biggest challenge for the economy could come from the export sector. Private sector capital expenditures are also not happening so the onus is on the government to kick-start the investment cycle.

Indian markets are also on the throngs of an earnings contraction. Already, banking, metals and industrial sectors have reported weak earnings that could see analysts cut earnings expectations this year for FY17.

A fall in corporate earnings the current year can still make the Indian markets look pricey even after the correction in stock prices. For instance, if the Indian earnings expected for FY16 is around Rs 1300 on the Sensex, stocks are still priced at 17.7 times at current levels.

Earlier, analysts were expecting earnings to be in the range of Rs 1450 for FY17 at which levels the front line index gets priced at 15.86 times, which is at the historical averages.

So, foreign and domestic investors will be looking for a revival in earnings. Corporates have little room to make capital expenditures that will revive employment and boost demand. If Budget 2016 can fuel a capital expenditure that can revive the investment cycle and at the same time keep a check on fiscal slippages, the Indian corporates may see a change in fortunes sooner than expected. All hopes now hinge on Budget 2016.