Free Reports

2014: The year that was

Dec 31, 2014

In this issue:
» Best and worst performing asset classes
» The future of oil amidst US-OPEC conflict
» Reforms in energy and banking sectors
» Roundup on markets
» ...and more!


00:00
  Chart of the day
It is that time of the year when we look back to assess which were the biggest hits and misses for investors in the 12 months gone by. Up almost 30% year on year, Indian stocks were undoubtedly one of the best asset classes to be invested in. In fact this is the highest return Indian stocks have seen since 2009. The post election euphoria in 2009 had seen stocks go up as much as 75-80%! So in hindsight, investors who reposed confidence in the upside from Indian equities were in for some handsome returns on their portfolio.

But it would not be wrong to say that some of the optimism about equities was borrowed from global stock markets as well. Stocks listed in China and the US also featured amongst the best performing asset classes of 2014. In fact with almost 50% gains in China's benchmark CSI 300 index, stocks in the economy saw the best returns in 5 years. And no other asset class globally came close to competing with Chinese stocks in terms of returns this year. The S&P 500, backed by cheap liquidity from the US Fed, too had a good year in 2014. But its returns paled against that of Chinese and Indian stocks. Ditto with Japanese stocks that ended the year with single digit gains despite sufficient money printing.

Having said that, hard assets like silver and crude oil did not see a year as bad as 2014 in many many years. With financial assets like stocks and bonds promising quick returns, the inflation hedging properties of gold were sidelined. In India, it was only the RBI that was left battling concerns about inflation. And with government imposing restrictions on buying gold, the yellow metal lost most of its investment appeal. The fortunes of silver were much worse.

But the worst and the most unexpected fate in 2014 were of oil and along with it Russian stocks. The conflict between US shale gas producers and oil cartel OPEC saw oil prices crash by almost 50% in 2014. And for Russia, as if the economic sanctions due to Ukraine were not enough, plummeting oil prices dealt a heavy blow to the economy. The Russian stocks, needless to say, competed with oil to be labeled as the worst performing asset this year.

Best and worst performing asset classes of 2014

To summarise, the biggest gaining and losing asset classes displayed a good mix of greed and fear in 2014. While stocks benefitted from the liquidity induced greed, commodities lost ground due to fear about change in demand supply dynamics.

So what is Mr Market thinking now? And which assets could be the safest bets for 2015 and beyond? More on that tomorrow....

What according to you was the most unexpected economic outcome in 2014? Let us know your comments or share your views in the Equitymaster Club.

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02:20
As the year 2014 came to an end, crude oil prices continued to move downwards; in the process witnessing the worst slump since 2008. The trend continued as concerns over the oversupply situation rose thereby increasing the uncertainty over how things are likely to play out in 2015. What makes the situation interesting is that current prices hover around the oil production costs of a good portion of the non-OPEC oil producing nations; thus making it tough to predict the trend. This is considering that the OPEC nations have not hinted towards cutting supply levels anytime soon; but rather want to defend their market share. What is further keeping the prices under pressure is the downward revision of oil demand going forward. The International Energy Agency (IEA) has cut expected demand lower by 230,000 barrels per day to a figure of 900,000 - essentially a cut of about one fifth.

02:55
Continuing our discussion on lower energy prices, it seems that the timing of the same could not have been any better for the new government as it made the most of the situation by implementing one of the most required reforms in the oil and gas sector - diesel deregulation and hike in the natural gas prices. With these moves, the government spending on relatively unproductive expenses is expected to come down. As per data, the government paid about Rs 850 bn for selling diesel, LPG and kerosene at below market prices. The savings this year are expected to help reduce the fiscal deficit substantially.

Not to mention that diesel deregulation is expected to be a positive for oil companies as it is likely to reduce the subsidy burden for upstream oil companies such as such as ONGC. Lower under recoveries for downstream companies such as HPCL, BPCL and IOC will also improve operational efficiency in the form of lesser working capital requirement and hence lower borrowings. Having said that, we believe that the Government needs to urgently provide clarity on subsidy sharing mechanism that remains an overhang on upstream companies.

03:40
Another area that was the government's focus in 2014 was financial inclusion. Offering new bank licenses and the Jan Dhan Yoajana were both steps in this direction. The two new bank licenses, awarded to IDFC and Bandhan, were amongst the first of several such licenses that the RBI and government could be offering to credible institutions in the coming years. And this should ensure that financial assets and loans become more accessible even in smaller towns and hinterlands. The Jan Dhan Yojana, meanwhile, is the PM's most ambitious project to ensure that every Indian household has a bank account and insurance cover. Access to credit facilities from banks would mean they would no longer be targeted by money lenders. Also, the bank account would facilitate direct cash transfer, thereby eliminating pilferages in subsidy transfers.

04:30
Sentiments amongst Indian stocks remained firm today with the BSE-Sensex trading higher by about 90 points at the time of writing. Gains were seen in stocks across the board with realty and power stocks leading the pack of gainers, while auto stocks were under pressure. Mid and smallcaps were in demand today as well with their representative indices trading higher by about 1.1% each at the time of writing.

04:50
 Today's investing mantra
"Stop trying to predict the direction of the stock market, the economy or elections".- Warren Buffett

Team Equitymaster Wishes You A Very Happy and Prosperous New Year!

This edition of The 5 Minute WrapUp is authored by Tanushree Banerjee and Devanshu Sampat.

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Equitymaster requests your view! Post a comment on "2014: The year that was". Click here!

5 Responses to "2014: The year that was"

Ved Prakash

Jan 2, 2015

GOOD YEAR 2014. I always enjoy the analytical approach of Eqm Team for each and every small or big issue related to economy and stock market. Hoping for a stock specific impact analysis reports which is missing and can widen EQM base Many folds. congrats wish you all a great year ahead 2015.

Like (2)

Savio

Dec 31, 2014

I liked the pic of the entire team.

I look forward to a video next year. :)

A Happy New Year to the entire EqM team and congrats on the great work done in 2014!

~Savio

Like (2)

Ganesh

Dec 31, 2014

Happy New Year 2015 !!
Wishing the EM team a year filled with wiseness, happiness and peace.

Like (2)

C.H.Bhapat

Dec 31, 2014

Happy New Year 2015.

Like (1)

GURURAJ

Dec 31, 2014

Wish you all a HAPPY HEALTHY PROSPEROUS EVENTFUL NEW YEAR

Like (1)
  
Equitymaster requests your view! Post a comment on "2014: The year that was". Click here!


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