As an investor, I would describe the 2019th year of Christ as
"befuddling".
The domestic economy worsened materially despite better global
opportunities, improved infrastructure and supportive policy environment. The
private consumption and investment were the worst affected areas of the
economy, despite introduction of an elementary Universal Basic Income (UBI)
program for farmers, best monsoon in decades, 135bps fall in policy rates
(which have been mostly transmitted), and persistently low inflation for most
part of the year.
For most of the financial investors, the year 2019 was
disappointing in terms of return on portfolios, even though the benchmark
equity indices are ruling at all time high levels, foreign flows have been best
in 5years, and benchmark bond yields are lower by almost 100bps.
Domestic economy worsens
The year 2019 witnessed significant deterioration in the
macroeconomic parameters like GDP growth, fiscal deficit, foreign trade,
unemployment, credit growth, savings rate, private consumption and investment,
etc. The inflation has also started worsening in last 3months months. Almost
70% of the population is facing stagflation like conditions with stagnant to
lower wages and rising cost of living. Besides, some new sectors of stress
emerged in the economy. The business and consumer sentiments are despondent.
On the positive side, many legislative and procedural changes
started to support the stability and growth. For example, the bankruptcy
resolution process gathered some pace, lending some stability to the banking
system; RERA also began to show some positive results with real estate sector
consolidating and developers with stronger balance sheets benefitting; bank
recapitalization and consolidation has progressed well and shall bear fruits in
next couple of years.
Besides, in principle decisions have been taken to privatize
large PSUs like Air India, BPCL, Shipping Corporation etc; the process for
development of a vibrant retail debt market has started on an encouraging note
with launch of PSU Bond ETFs; some significant changes have been implemented to
strengthen the regulation of financial markets and preventing frauds and misuse
of investors' funds.
Overall, many global & domestic agencies and experts have
expressed serious concern over the state of India's economic affairs, while
downgrading the growth forecast. Global rating agencies have even cautioned
about a possible rating downgrade, should the economic growth continue to
remain low.
Global economy remained in slow lane, but ending the year on
positive notes
The global economy, including the USA, Europe and China mostly
remained in the slow lane for most part of the year. Multiple trade conflicts,
most notably between US & China, US & Europe, Japan & Korea, slowed
down the trade considerably. The uncertainty over Brexit kept the businesses in
UK and Europe on the edge. The geo-political tensions, especially in the Middle
East Asia, Indian sub-continent and Korean peninsula also impacted global
trade. Consequently, most commodity producing economies struggled with
deflationary pressures.
However, towards the end of the year, some signs of stability
are emerging. A decisive mandate for conservative party in UK and lessened the
Brexit uncertainty considerably. There is some thaw in Sino-US trade relations.
The latest data from China has signaled bottoming out of commodity demand. The
central banks of US, BoJ, EU, UK, Canada, India, Australia etc., have all hit
the pause button in their latest policy reviews.
Sensing a revival in global economy, the global equities have
recorded decent gains in past few weeks.
The financial markets are jittery
While the benchmark equity indices have returned ~11% YTD 2019,
the broader markets have given up most of the gains made in 2017. Out of the 12
major sectors, only three could give positive return YTD, while 9 sectors gave
negative return. Core sectors like Commodities, Auto, Pharma and Consumption
have yielded a negative return YTD in 2019. Private Banks is the only segment
that has outperformed Nifty this year.
Cash (Liquid Fund and Bank Deposit) returns outperformed most of
the debt fund returns during the year.
This has happened despite five year high foreign inflows into
equities.
Socio-political conditions are tense
Insofar as socio-political conditions are concerned, the year
2019 has been marked with widespread student protests and cases of mob outrage.
Legislative changes like Abrogation of Article 370 and Enactment of Citizenship
Amendment Act has caused civil unrest in many states. The state center
relations seem to have worsened due to rising mistrust and antagonism.
Despite winning an overwhelming mandate in the general
elections, the BJP's footprints continue to shrink in state legislatures. After
losing the key states of Madhya Pradesh, Chhattisgarh and Rajasthan to the
Congress last year, BJP lost Maharashtra this year; and could form government
in Haryana with the help of opponent Chautala family.
Socially, while no one is starving to death, the people in
general continue to be restless like last year. The primary reason is
unreasonably high expectations from the government and aspirations driven by
such expectations. There is little indication that this gap between political
promise and actual delivery will be mending anytime soon.
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