Modi rally peters out in 2015; what's the outlook ahead?

2015 was a roller coaster ride for the Indian equity markets. The benchmark indices hit all time highs, commodity prices cooled, crude prices plummeted and finally the much anticipated Fed lift-off took place. In other key developments, foreign fund flows dried up, turning FIIs into net sellers, but domestic funds came to the rescue. Sebi merged FMC with itself bringing the commodity markets under its purview. With the year coming to a close, what's in store for 2016?Extreme highs and terrible lows -- that's what 2015 was for the Indian equity markets. The benchmark indices witnessed extreme volatility with both Sensex and Nifty hitting lifetime highs to cross the 30,000 and 9,000 marks respectively at one point. Subsequently the indices lost steam due to multiple headwinds. Riding the Modi wave, the Indian stock markets stepped into 2015 with huge expectations. However, by the end of 2015, equity markets disappointed. The Modi premium, enjoyed by the markets in 2014, failed to sustain in the backdrop of weak earnings, dismal industrial pick-up and foreign fund outflows, falling commodity prices and the Parliamentary deadlock over the key GST reform.Says market expert Jyotivardhan Jaipuria, "Essentially, the big consensus is that growth is the missing element everywhere. So, growth is missing in India, but growth is probably a bigger worry outside India. And till that comes back, what we are playing is hope versus reality -- that we hope that things are getting better but somewhere every time, when earnings come out, the reality is that this is not really panning out." But it wasn't all gloom and doom. The primary market was on a secular uptrend with almost Rs 13,000 crore raised this calendar year, a sprightly jump from the Rs 9,500 crore raised in the last 3 years. And this is likely to get better in 2016 with companies from diverse sectors hitting the bourses -- L&T Infotech, Mahanagar Gas, PNB Housing Finance, VLCC Health, and Quick Heal are some of them."I think a lot of new companies will hit the market, especially companies in which PE investors invested in last 5-6 years. They are ripe enough to hit the markets," says Vikas Khemani, President - Wholesale Capital Markets, Edelweiss. "I think you will see a fairly large number of companies trying to hit the markets and raise capital and that will be an interesting opportunity as well."Meanwhile, it was also a watershed year for India's securities market with the much-awaited merger of commodities regulator FMC with SEBI sealed in September. The merger is aimed at streamlining the regulations and curb wild speculations in the commodities market, while facilitating further growth and protecting investor interest."Our effort would be to move in a cautious direction so as to ensure that we provide some comfort to the market and all the participants in the way transactions are going to take place in commodities futures market are as robust as the securities market," Sebi Chairman UK Sinha had said at the time of the merger.And by December, the US Federal Reserve hiked rates by 25 bps thereby beginning the tightening cycle. The Fed observed that future rate hikes would depend on economic growth data. While the Fed lift off was factored in by emerging markets such as India, future rate hikes may have impact on companies with high foreign debt. That will be a key factor to watch out for in 2016.So even if the street was let down in 2015, hopes for 2016 are aplenty. E-IPOs, for one, will change the way primary markets function. New listing regulations will bring in more transparency in the way companies disclose material information. SEBI will have a new chairman -- and while 2015 was the year of net foreign fund outflows, India's growth should see foreign funds return to chasing growth in 2016.