Q1 Review: India

The first quarter of this year saw a fair bit of volatility, with both the bulls and bears getting it wrong and right depending on which day of the week you check. January and February saw a weak global sentiment that reversed around the mid of February. Since then, the US has staged the biggest recovery in equity markets, and the dollar has declined from the peak. The Indian market continued to stay weak however, and the final low of around 6850 was the day of the budget. There was a fear that the government might impose higher taxes on trading and capital gains, and this served to keep sentiment low throughout the month. Since the budget, we have seen a big rebound of 10% in the March. This makes March this year one of the best months of all times, and certainly the best March in many years.

The earnings season for Q1 will begin soon, and expectations are high. After the decline in earnings in 2013, there was an expectation of a recovery in 2014. It is now 2016 and earnings have yet to recover to earlier growth rates. Globally, there is a spectre of deflation, and central banks are pursuing unconventional monetary policies to get growth and inflation. Against this backdrop, India has reported a GDP growth of ~7.5%. This seems very high, considering that inflation is very low, and the dismal earnings growth of listed companies does not indicate a GDP growing at 7%+.

The US Fed has indicated they are going slow on rate hikes, and downgraded their own expectations of rate hikes from 4 to 2 for this calendar year. This brought some cheer to the markets, but this is not likely to be enough. A key factor affecting US growth is the strength of the US dollar, and if central banks mount a coordinated response (as the rumours say) about weakening the dollar, then not only would we see a substantial recovery in commodities, but also bonds of EM countries and companies tied to those commodities. Broadly, this should help markets recover overall and also help US growth. This would also take the pressure off China to devalue the Yuan. The Dollar Index is below a major support, and we think this is a start of the downtrend in the DXY which has bullish implications for all other asset classes.

The top performing stocks this quarter were from the Sugar industry. Dwarkesh was the top performing stock running up a massive 112%, along with Oudh Sugar Mills. Out of the top 20 best performing stocks, at least half are sugar mills.

Top performers Jan- March 2016