If 2018 was a tough year for investors in Indian in financial
markets, the year 2019 has been a even tougher. YTD return of ~11% on Nifty may
not be reflecting the pain and agony that the investors in Indian financial
markets may have suffered. The larger pain in fact may have been suffered by
the investors in the perceived to be "safe" debt instruments.
The year began with low business expectations and political
nervousness. The hopes of a stronger mandate to the incumbent regime and
consequent economic reforms, led a strong rally in the stock prices as the
process of elections commenced in March. The Euphoria soon fizzled with
presentation of a disappointing budget and imploding NBFC market, erasing all
gains for the year by the month of August.
The corporate tax cuts, alongside global rally in equity prices
witnessed a sharp recovery that took the benchmark indices to new highs in
November. December so far has been little volatile but mostly flat.
YTD 2019, Indian benchmark indices have significantly
underperformed the peers like Brazil and China, and developed markets like USA,
Germany and France. The pain has however been seriously accentuated in the
broader markets, where the small caps and midcaps that did exceedingly well in
2017 and early 2018, suffered massive value erosion.
The domestic flows into equity mutual funds that underpinned the
market rally in 2017 and market resilience in 2018 (and most part of 2019)
appear to have tapered towards the end of the year. Though, foreign portfolio
investors (FPIs) turned significant buyers in 2019, after turning net sellers
in 2018. The net FPI investment in Indian equities in YTD 2019 is 65% more than
the cumulative net flows of previous 4 calendar years (2015-2018).
The debt funds returns continued to be impacted by losses on
NBFC portfolios, rise in bond yields and large number of rating downgrades.
Some Fixed Maturity Plans failed to deliver the promised returns. Many debt
fund returns were below the bank deposit rates, despite higher risk. Credit
risk fund (below AAA corporate bond funds) were very low to negative.
Like end 2018, many market experts are drawing comfort from the
below par performance of Indian equities in 2019, in true Christmas spirit.
Most are expecting (or rather hoping!) that the markets might have already
suffered their worst, and 2020 could be a positive year.
FY20 is most likely to end as sixth consecutive year of earnings
disappointment. The expectations for earnings in FY21 are expectedly running
high. Currently the consensus seems to be placed around 25-28% earnings growth
in FY21, over a low base. The corporate commentary however is not that sanguine
and leaves scope for disappointment and earnings downgrades.
As a ritual, regardless of the outcome and consequences, most
experts forecast their respective targets for the benchmark indices 12months
hence based on their respective assessment of the macro and corporate
environment. These forecasts are charitably received, notwithstanding the
accuracy or otherwise of previous such forecasts, only to be discarded just
like old calendar and diaries.
Following the rituals, I too invariably join in the spirit of
Diwali and Christmas. Using these discreet points in the ad infinitum, I
like to pause, reflect back, review and revise my strategy and action plans.
Accordingly, as part of the overall exercise, I would be
reviewing my outlook and investment strategy for 2020 and sharing my thoughts
with the readers through this column.
No comments:
Post a Comment