In retrospect, 2014 has been a year that required a lot of chutzpah to navigate. Equities delivered outsized returns, markets were driven mainly by re-rating, the bottom dropped out of crude oil. With all this in mind, what will drive markets in 2015?

Earnings to back multiples

As Andy Dufresne in The Shawshank Redemption said “Hope is a good thing. Maybe the best of things”. However, too much of anything is bad. At a price-earnings multiple of 18-19x trailing earnings on the Nifty and over 25x for the mid-cap index and 33x for the small cap index, hope about equities is certainly at a high today. But for markets not to retrace their path, actual earnings or visibility of earnings growth will be paramount.

More volatility

Given anaemic earnings growth and a murky global environment, say hello to volatility.

Remember that pesky neighbour hanging about your home whenever guests landed from overseas, laden with gifts?

Market volatility may be like that guest in 2015. We could see more bouts of it than last year.

Slow recovery

Already, murmurs of a slower-than-expected economic revival are being heard.

The 2008-09 crisis was followed by a V-shaped recovery.

But recovery from this downturn may be a slower process. The current slowdown appears similar to the 1999-2002 period of sluggish growth and a long grind to revival.

Pause in small/mid-caps

Is the party in small and mid-cap stocks, the stars of this rally, over? Perhaps not, but be ready for a breather.

Valuations at 1.8 times those of the Nifty (on a trailing basis) are difficult to sustain unless earnings growth from the midget companies also follows a similar trajectory.

This is the segment most susceptible to catch a cold, if the large-caps sneeze.

Domestic flows or FIIs?

A key development for calendar year 2014 was the rediscovery of equities as an asset class by local investors. Domestic flows into equities were higher than FII flows. But the last time this happened was in calendar year 2008. That’s not very auspicious!

Lower crude oil

While the last quarter of calendar year 2014 witnessed “destabilisation” due to the sharp fall in crude oil prices, calendar year 2015 will see the benefit of this fall. In India, users of crude oil outnumber producers.

So corporate earnings may see a lift. In addition, if US consumers can spend more due to lower crude prices, why not Indians?

Commodity retreats

After last year’s rout, commodity prices should be stable with upward bias, if no shocks to global growth occur. If all these factors converge, the mythical 10-15 per cent return on Indian equities may become a reality.

Drive safely, invest wisely and pray the only exposure you and your family have to healthcare is through your equity portfolio. Have a great year ahead.

The author is head of equity, UTI MF. Views are personal

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