As we move into the last trading day of 2018, it’s time to look back at the year that was and take lessons for the next year.
History is always important for looking into the future of stock market, as oxymoronic it may sound. The reason for that is that essentially, market is about greed and fear and as long as mankind (or peoplekind if you are a Justin Trudeau fan) is intact, these two emotions will continue to drive the market because market is made of people (At least till now. We will deal with robots when they arrive!)
But why do we need a year like 2018 in which, broadly, people lost a lot of money. The midcap index was down 15 percent and small-cap index was practically butchered, down 24 percent. This implies that on average, individual portfolios would have fallen roughly 20 percent and if you were really unlucky, perhaps down over 40 percent.
The slump was very much needed because this was a year of mean reversion, unlike 2017, which spoiled everyone. The midcap index was up over 40 percent last year and the market didn’t have a single correction in all of 2017. That is not healthy. When money making becomes so easy, when the market becomes so forgiving even when you buy duds, and stick to them, there is clearly a sign that something isn’t right and true to its nature, the market gave warning signs in January before starting a much needed phase of correction in the broader market and consolidation in large cap indices.
As December approached, the market had to deal with two big blows. The global equities entered a bear terrain and the market faced the biggest political uncertainty following the debacle for the BJP in three major states. The fact that the Nifty is still ending closer to 11,000 and not 10,000 is a big testament to the maturing Indian domestic investor, who kept the faith despite relentless overseas selling.
As we move into 2019, the market has given signs that perhaps the broader market correction is over. The market breadth on most days has been good (barring a week of manic moves) and there is lot of money moving to domestic stocks from the exporters, which is a sign that the market is finally preparing for an economy which might be ready to get over the slow down and move into fast pace.
And lastly, 2018 wasn’t that bad either. If you were disciplined and respected risk-reward, bought dips near support and sold rallies near resistances, you made a lot of money.
As we stare into 2019, my sense is that the first half is again going to be volatile and you will have to remain nimble footed, especially in the run up to the general election but after May, the market may see a huge rally as the pent-up demand for stocks may meet an environment which will no longer be uncertain.
But will you be ready to cash-in when that happens? Well, I hope you do.
Have a wonderful 2019!
Anuj Singhal is the stocks market editor at CNBC-TV18.
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