Wednesday, 6 April 2016

IAIP Annual Forecast Event – Key Takeaways

The 8th Indian Association of Investment Professionals (IAIP) Annual Forecast Event held at the historic International Convention Hall of Bombay Stock Exchange (BSE) on 1st April 2016 saw large attendance from various market leaders, industry professionals, students and investors. Experts shared their views and outlook on the financial, economic, fiscal and monetary topics and indicated what they thought about the prospects of the Indian economy in the next financial year.

With assistance from my friend Pranav Pendyala, I have jotted down a few significant points discussed in the session.

General Overview

  • BSE Sensex clocked first yearly loss in the last four years
  • Negative interest rate environment in major parts of the globe has rarely happened earlier. Banks might start charging the public for keeping their money with banks.
  • Rate cut not being implemented by banks though it has been initiated by RBI. This is due to the liquidity crunch for banks. This crunch leads to higher WACC.
  • Urban consumption of goods and services is increasing along with volatility.
  • According to BASEL III regulations, more capital is being demanded on banks’ balance sheets. Private banks have an advantage over public banks as private banks already have more capital than their public counterparts.

2016-17 Projections: Survey Results

1. Best Asset Class for Risk-adjusted Returns
a.       Equities: 58%
b.      Government Bonds: 9%

2. Real GDP Growth
a.   Between 6.5% and 7.0%: 29%
b.      Between 7.0% and 7.5%: 40%

3. CPI Inflation
a.       Between 4.5% to 5.0%: 21%
b.      Between 5.0% to 5.5%: 19%
c.       Between 5.5% to 6.0%: 20%

4. 10-year GOI securities Yield
a.       Between 6.5% and 7.0%: 34%
b.      Between 7.0% and 7.5%: 39%

5. Crude Oil (Brent) prices– per barrel
a.       Between USD 35 and USD 40: 21%
b.      Between USD 40 and USD 45: 22%
c.       Between USD 45 and USD 50: 22%

6. Gold Prices
a.       Between USD 1100 and USD 1200: 29%
b.      Between USD 1200 and USD 1300: 28%

7. Average INR – USD Exchange Rate
a.       Between 66 and 68: 28%
b.      Between 68 and 70: 22%

8. Target for BSE Sensex
a.       Between 26000 and 28000: 24%
b.      Between 28000 and 30000: 35%

9. Sensex EPS (Corporate Profits)
a.       Between 0% and 10%: 44%
b.      Between 10% and 15%: 41%

10. Most critical driver for Indian Equities
a.       Government policies and reforms: 39%
b.      Corporate Results: 22%

11. Most critical concern for Indian economic growth
a.       Global Low Growth Environment: 45%
b.      Government Policies: 26%

12. Compensation expectation in Finance industry
a.       Increase between 0% and 10%: 39%
b.      Increase between 10% and 20%: 41%

Assessment of FY 2015-16

  • GDP Growth of 7.5%
  • Volatile global environment
  • Global factors have impacted the market more than domestic factors

How FY17 will be different from FY16

  • Nominal GDP growth will be almost equal to Real GDP growth
  • Big hit on banks due to NPAs
  • Rural economy should be better this year comparatively
  • Back-to-back monsoon failures for the past two years not expected to continue