2019 calendar has been positive for the Indian market benchmarks although volatility kept investors on tenterhooks throughout the year.
From Christmas 2018 to Christmas 2019, the benchmark Sensex gained almost 17 percent, outperforming BSE Midcap, Smallcap, BSE 200 and BSE 500 indices. Nifty 50 gained nearly 15 percent in the same period.
The double-digit return of the Sensex and Nifty 50 looks satisfying but it is not the case with broader mid- and smallcap indices that are in the red.
Benchmark indices gained as the government swung into action to support the economy and in hopes that more measures like corporate tax cuts will follow. Many continue to expect positive changes in personal income tax slabs in the upcoming budget.
"We believe a global risk-on rally has also resumed with the quantum of negative-yielding bonds reducing and the trade war cooling off. In the case of India, the earnings yield of equities is very attractive vis-a-vis fixed income," said Amar Ambani, Senior President and Research Head - Institutional Equities at Yes Securities.
However, market participants point out to the fact that the rally in the market was confined to select stocks and the secondary indices did not witness the same optimism; midcaps and smallcap even slipped in the red hit by the gloomy macroeconomic environment.
Let's take a glance at how the key indices fared from last Christmas to this Christmas.
With 16.89 percent gain, the BSE Sensex outperformed its major counterparts. In the 30-share pack, 20 stocks logged gains since the last Christmas.
Data shows Bajaj Finance (up 61.34 percent) led the pack of gainers, followed by Bharti Airtel (up 61.23 percent), ICICI Bank (up 53.14 percent), Reliance Industries (up 41.82 percent) and Kotak Mahindra Bank (up 38.30 percent).
On the other side, Mahindra & Mahindra was the top loser during the same period, with a loss of 33.11 percent followed by Hero MotoCorp (down 23.31 percent), ONGC (down 14.78 percent), ITC (down 13.59 percent) and Tata Steel (down 10 percent).
BSE Midcap index slipped 2.31 percent in the same period with Indian Bank (down 56.13 percent), PNB Housing Finance (down 54.92 percent), Central Bank Of India (down 49.15 percent), Glenmark Pharmaceuticals (down 48.04 percent) and Mangalore Refinery & Petrochemicals (down 43.92 percent) as the top losers.
On the other hand, Reliance Nippon Life Asset Management, with a gain of 113 percent, led the pack of gainers in the index. It was followed by Whirlpool Of India (up 75.45 percent), Adani Transmission (up 66.79 percent), Info Edge (up 64.08 percent) and Indraprastha Gas (up 63.05 percent).
Midcaps and smallcap have been in a consolidation phase since the start of 2018.
"The midcap rally that ended in 2018, will likely further consolidate in 2020 and recovery may coincide with the economy gaining steam. For now, even as consumption has slowed, private investments are unlikely to gain momentum as capacity utilisation levels still hover around 74 percent," Ambani of Yes Securities said.
The index has retreated 7.48 percent from the last Christmas to this Christmas. Among the top losers of the index for the said period, Cox & Kings, Talwalkars Healthclubs, Mcleod Russel India, Sintex Plastics Technology and Kridhan Infra emerged at the top, falling between 94 percent to 99 percent.
Among the gainers, Adani Green Energy (up 252.18 percent) stood at the front, followed by Seamec (up 136.31 percent), Jump Networks (up 136.25 percent), Aavas Financiers (up 134.22 percent) and Garden Reach Shipbuilders & Engineers (up 18.65 percent).
The BSE 200 index rose 11.25 percent in the same period. HDFC Asset Management Company, with a gain of 115 percent led the pack of gainers in the index. It was followed by Reliance Nippon Life Asset Management (up 113 percent), Whirlpool Of India (up 75.45 percent), Abbott India (up 74.29 percent) and SBI Life Insurance Company (up 72.14 percent).
Vodafone Idea (down 72 percent), Yes Bank (down 72 percent), Indiabulls Housing Finance (down 62.15 percent), Indian Bank (down 56.13 percent) and PNB Housing Finance (down 55 percent) were among the top losers in the index.
The index is almost 10 percent up for the period, with Adani Green Energy (up 252.18 percent), Aavas Financiers (up 134.22 percent), HDFC Asset Management Company (up 115 percent), Reliance Nippon Life Asset Management (up 113 percent) and CreditAccess Grameen (up 108 percent) as the top gainers.
Among top losers were Reliance Capital (down 93.77 percent), Dewan Housing Finance Corporation (down 93.58 percent), Reliance Infrastructure (down 91.71 percent), Jain Irrigation Systems (down 88.16 percent) and Reliance Power (down 87.79 percent).
Where does the Indian market stand
This year’s rally has been driven by FPIs and is restricted to mainly large-cap stocks. The gains in the market came after the government jumped in to revive the confidence of the investors.
The Indian market underperformed major global peers as worries of a slowdown in the domestic economy refused to fade away.
"The entire Nifty50 returns in this calendar year have come after the corporate tax cut announcements made in September 2019. In the global context, the Indian market has grossly underperformed the developed markets and even some of the emerging markets. Portfolios of most funds, PMSes, and individuals have underperformed the Nifty50," said Rusmik Oza, Senior VP & Head of Fundamental Research at Kotak Securities.
As per Ranjan Chakravarty, Economist and Product Strategist at MSE, the Indian capital markets were an accurate reflector of the underlying drivers. Fixed income clearly followed rate policy until July and then moved in anticipation of the aggressive rate cuts that were expected. When they didn't materialize, yields rose irrationally in August through December. USDINR performed exactly as per the Brent linkage and stayed below 72 as expected. The Brexit vote had a negligible impact.
The way ahead
Most market experts expect a recovery from the coming quarters. There is hope the government will announce steps in Budget 2020 to help cheer up the economy and the market.
Ambani of Yes Securities has 12,900 as the target for Nifty for the year 2020.
"Having said that, 2020 will be a year to firm up positions in equities, as we believe 2021 will bring a start of a secular rally. I would, therefore, advocate at least a 65 percent asset allocation to equities if you have a 3-4 year time horizon," Ambani said.
As per the brokerage firm Sharekhan by BNP Paribas, the equity market seems to be factoring in an improvement in macroeconomic conditions domestically. They are not assuming a big-bang recovery, but hoping the ‘worst is over’. In addition to accommodative monetary policy, the government is taking policy measures to address the issue, though the fiscal space to do so is getting quite limited.
The global scenario also seems favorable for equities, given the interest rate cuts in the US and the resumption of quantitative easing in Europe. Finally, the US and China seem to be moving towards some kind of understanding on trade tariff-related issues.
The outlook is positive, say experts, but the risk of a sudden deep correction remains.
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First Published: IST