Earnings, global liquidity crucial for stock market in 2019; Reliance Securities CEO shares top bets | EXCLUSIVE

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Updated: January 4, 2019 5:08:18 PM

The two most critical factors for 2019 for the Indian market will be earnings and global liquidity, says B Gopkumar of Reliance Securities. Banks are expected to see a bounce-back in earnings growth in the year, he says.

stocks, stock markets, global stocksThe two most critical factors for 2019 for the Indian market will be earnings and global liquidity, says B Gopakumar of Reliance Securities.

After a volatile 2018 for the stock markets with the Sensex and Nifty returning tepidly, New Year 2019 is likely to be another volatile year. The two most critical factors for 2019 for the Indian market will be earnings and global liquidity, says B Gopkumar of Reliance Securities. Banks are expected to see a bounce-back in earnings growth in the year, he says.

“We should see the banking sector delivering healthy credit and earnings growth in the upcoming year,” he told FE Online. Sushruth Sunder of FE Online recently interviewed B Gopkumar, ED & CEO, Reliance Securities, who shares his outlook on the stock market for 2019; sectors likely to outperform; takeaways from 2018, and how investors should approach 2019. Here are edited excerpts.

What are the key factors to watch out for in 2019 for stock market investors?

Like 2018, the 2019 is likely to be another year of high volatility. Volatility for 2019 will be a global phenomenon, while the evolving political scenario in India will also stoke volatility. The most critical factor for 2019 for Indian market will be the bounce back of earnings growth. GDP growth rate is expected to be better than most emerging markets and domestic inflation is at a sweet spot. Another key factor to watch out will be the global liquidity which is dictated by the actions taken by the US Federal Reserve. Now more economists expect a US recession in 2020 or even late 2019 which could pose a major challenge to global growth rates, but it could also prompt the central bankers to ease liquidity. So, the two most critical factors for 2019 for the Indian market will be earnings and global liquidity.

Also read: Will Modi’s BJP win in 2019 take Nifty to 12,500? Here’s what this researcher says

Which sectors are likely to outperform in the year 2019?

Banks are expected to see a bounce-back in earnings growth and private banks are well placed as the stressed asset challenges have passed their peak. We should see the banking sector delivering healthy credit and earnings growth in the upcoming year. IT is another sector that is expected to post strong earnings growth because of improving operational performance and currency support. Election year is typically marked by higher spending and this election will be the most expensive election ever. Spending by all participants will be significantly higher as the stakes are quite high. This would mean consumer spending is likely to pick up in the next year. Consumer is another sector which is likely to see solid earnings growth, but valuations pose a challenge and hence stock picking will have to be selective.

In your view, how well did the Sensex and Nifty perform in 2018?

It was largely a flattish year for the BSE Sensex and Nifty 50 index. The large-caps and quality index stocks have fared better than the mid-caps. The market has been dominated by only a handful of stocks otherwise if we analyse the market on an equal weighted index basis the return would be a significant negative for the year.

What are the key takeaways for investors from a volatile 2018?

Diversification is the key. Retail investors tend to shy away from the high quality large-cap names as they believe the returns are limited and primarily have greater allocation to small-cap and mid-cap stocks. Investor should have a healthy allocation to quality and large cap stocks as they tend to navigate the challenges of volatility better. It is always better to play the business cycles than market cycles. Business cycles tend to deliver sustainable returns whereas market cycles tend to be unpredictable.

How should investors approach stock market in New Year 2019?

As discussed earlier, diversification and quality will be the key for 2019. Quality stocks ensure higher earnings visibility and help generate positive returns during volatile times. The first half of 2019 is likely to be more challenging than the second half. Market volatility is likely to reduce after the elections and focus will completely shift towards bottom-up approach. In the second half of the year, the mid-caps and small-caps are likely to perform better while the first half could be more focussed on quality, earnings growth and large caps.

(Disclaimer: Views expressed in this article are that of the brokerage firm. Consult your investment advisor before making any decisions.)

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