2019 in perspective: A year of high volatility

The year 2019 will go down in India’s history as the most volatile year for financial markets. It witnessed two budget presented by the government in its effort to kick start the sagging economy through several initiatives on the socioeconomic front through assertive politics.

The country withstood changes brought in by landmark bills in parliament.

The year 2019 witnessed two Budgets, the levy and then a roll-back of the FPI surcharge, accommodative monetary policy cutting interest rates by 135 basis points, and a historic direct tax reform where effective corporate tax was lowered by 8–9%.

It also saw the repeal of Article 370, amendment of the Citizenship Act of 1955, amendment to the IBC Act, and several micro policy reforms enabling and empowering effective corporate governance.

The changing political and business environment did little to deter investor sentiment.

The benchmark indices rallied to fresh records amid economic concerns.

Markets reacted specifically to measures taken by the government to assuage fears that emerged weak economy coupled with global uncertainty from the trade war.

All asset classes provided steady returns fuelled by the unmatched liquidity push by central banks across the globe.

Among various asset classes, Crude Oil emerged as a top outperformer with 32% returns while the US 10-year bonds yields fell by 32%.

Inequities, the developed economies, along with Brazil from the emerging basket performed well.

Thus far in 2019, most global indices are in the green, viz. Dow Jones (+20.61%), S&P 500 (+26.41%), Russell 2000 (+21.46%), CAC (+25.12%), DAX (+25.80%), Brazil (+28.08%), and Nikkei (+20.03%).

However, the emerging economies largely underperformed, viz. Hong Kong (+7.13%), South Korea (+6.33%) and India (Nifty: +11.27%).

Precious metals saw a mild upside, with gold, silver, and platinum gaining 15.24%, 9.28%, and 17.77%, respectively.

As for the Indian markets, they scaled new highs, however, it got narrower towards the top.

Out of the top 200 stocks by market capitalization, around 112 turned negative while only 82 are in positive territory, out of which 66 have been able to outperform headline indices.

Earnings for H1FY20 Nifty 50 have de-grown by -5%, while that of the next 150 stocks (excluding Vodafone Idea) is down -1%.

The future presents the hope of opportunity.

The year 2020 is likely to be a year of slow and stable economic growth recovery worldwide, status quo on monetary policies, demand-driven higher commodity prices, firmer oil prices, benign USD, and higher bond yields.

It will be a year of equities. Like 2019, high bouts of volatility will be the flavor.

An intermittent market correction will create buying opportunities and stock pickers will be rewarded appropriately. Cyclical stocks like financials, metals, materials, and automobiles are likely to outperform while FMCG and utilities will see muted participation.

Mid, small-cap segments will be highly fragmented amid stock-specific specific activity.

Net net we believe that 2020 will be a year of gradual recovery wherein the H2 will be more vibrant as macros yet continue to be weak but the positive side is that several green shoots are being seen selectively in few sectors and with govt ensuring the right corporate and tax policies we expect a gradual recovery in the Indian markets in 2020 with valuations in some beaten-down sectors looking attractive from a long term point of view.

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