Stock Market Investment: The year 2019 will be known in market history where the market made new highs and portfolios of retail investor touched to the new lows.
Stock Market Investment: The year 2019 will be known in market history where the market made new highs and portfolios of retail investor touched to the new lows. Thanks to a handful of stock which continues to hold major indices on high but there was big carnage happened in midcap and small-cap. In many cases stock lost more than 90% in the year 2019. Telecom companies saw a massive downside. Post-election 2019 results from the month of June 2019 Nifty started correction and corrected nearly 12% till mid of Sep 2019 till finance monitors do not come with the corporate tax reforms and taken back the taxation which was proposed on the FPI. In the same period, Nifty Midcap 100 lost more than 31%, whereas Nifty small-cap 100 lost more than 47%.
On economic front GDP at 5 years low on quarterly basis domestically & globally trade war between the two largest economies kept market in news and corrective mode all over the emerging economy.
A major slowdown in the manufacturing sector specifically in auto and auto ancillaries hampered retail portfolios like anything. Correction in autos started in early 2018 and accelerated post-September 2018 and became worst till Sep 2019. In all this time it has corrected 44%.
The other sectors where retail investors take major interest are PSU banking, metals and infrastructure all of them were consistently bleeding till Sep 2019. From the top of 2018 Nifty PSU bank index had fallen by more than 36%, whereas Nifty infrastructure had corrected by more than 25%.
Baring few Mutual Funds, all other mutual funds also have given negative returns. Even Fixed deposits with the bank are also looking risky in lights of PMC bank saga.
In short, all retail favourite high beta sectors were bleeding till Sep 2019. This has to lead to losses in retail portfolios & huge underperformance compared to major indices.
Post corporate tax cut by the Finance Minister Mrs Nirmala Sitharaman and various actions related to reality sectors, auto, PSU Banking & Telecom has given market place to breather. Some midcaps and small caps showed to bounce back from the recent lows. Some relief is seen in portfolios but still, it doesn’t seem out of the wood.
The government tried to make chocked economic growth cycle to run again. Till the time, the saving of corporate tax does not get converted into new CAPEX from private companies the growth wheel won’t get functional and ultimately demand will become worry point.
Technically speaking, every correction followed by a good rally and every good rally followed by healthy corrections. Nifty has gone through an unorthodox correction since July 2018 till September 2019. The total correction remained 1750 points. The correction was the reaction of the rally started early March 2016 from 6825 till 11760. So, it seems correction has more or less finished and a new leg for the rally is already started. This can be visible in fundamentally good stocks which have corrected heavily in this correction managed to bounce back sharply from the bottom of Sep 2019. If same pattern continuous one can see broader base rally soon in the market.
In the last couple of years, the Indian market has become top-heavy. A handful of stocks has rallied and seen major allocation from a major player. Whereas, remaining stocks had seen a major correction. This finally impacted in a lower absolute correction in the index but bleeding in portfolios of investors. Since September 2019 the scenario is changing a bit some fundamentally sound companies have seen the interest of institutions. It is time for a laggard to get pick up at the same time large-cap may see some consolidation.
In the coming year, the market may remain choppy but clearly in the bull grip. There will be some sector rotation as a usual course of action. Current EPS of Nifty 50 is around 435, even EPS expansions of 7-8% with PE current twelve months trailing PE of 27.30 one can see 8-10% rise in indices. This will give a target of 13000.
Once the rally in midcap and small caps start one can see interest from a retail investor will increase and participation from there end will increase. The base building work is down by the government and a slowing economy will pick up in the coming few quarters. Normally, it is well known that market factor in at least two quarters. As Nifty is already at all-time high one may expect a good pick up in participations.
(By Vishal Wagh, Equity Research Head at Bonanza Portfolio Ltd)