Market outlook: Nifty likely to touch 12,400 in CY19

Interesting times never seem to be ending in India. We have a paradox of immense potential and underperformance due to various reasons – traditional and modern. While the societal and psychological structure (which frustrates people at times) need massive change, we inherently can’t think of living anywhere else.

Similar is the case with capital markets in India. Changes are required in corporate disclosure requirements, in containing the rumour mills/planted stories, tweaking the F&O/SLBM (stock lending and borrowing mechanism) space and taking the pedal off the regulatory tightening by the exchanges/SEBI. One would wish for lesser number of listed companies with decent managements rather than the other way. Let us allow only select companies to list.

2018 has been a tough year for making wealth despite Nifty growing 4 per cent (till December 20, 2018). The markets got narrower by the day due to various measures of the regulators, some of which were necessary but disappointments for investors, caused by corporate governance issues at some companies. Foreign institutional investors (FIIs) changed their view on India following rising rates abroad and poor corporate earnings growth in India. Approaching political slugfest also dissuaded some investors.

Is 2019 going to be different?

We think so. Although the first half is loaded with election related noises and hype, we feel that the India story has legs to run on. Rural vs urban; manufacturing vs service, agriculture vs industrials will always be in focus. We will see one of these performing at any point in time. Demography remains in our favour, judiciary thankfully is independent and evolving, voters are gradually getting aware of their right (alas! when will they be aware of responsibilities). Rulers at the centre and state are becoming more responsive to the needs of time (though they keep slipping into populist mode every now and then).

Base for Q4FY19 is high and hence there is a possibility of earnings disappointment during that quarter. This period will coincide with the general elections and result in good amount of volatility. Over the first half of 2019, commodity stocks could face the brunt of global slowdown fears; BFSI (banking and financial services and insurance) stocks could remain volatile based on liquidity, NPA and credit growth trends. Automobile stocks could report flat to negative sales growth in the early part of the year. FMCG, IT are the two sectors which could lift indices. Oil & Gas could be a dark horse.

Nifty has the potential to touch 12,400 during CY2019. This is based on expectations of earnings pickup among Indian corporates post Q4FY19 and resumption of FII flows into India around and post general election time. Mutual fund inflows in India are on a structural upmove driven by greater financialisation of savings. Softening stance (including a probable rate cut) by the RBI in early 2019 could help valuations. Participation among largecaps may be more widespread than seen in 2018.   Mid and small-caps may perform better in 2019 after a poor run in 2018. 

Continuation of trade tiffs, resumption of bullishness in crude oil prices, continuation in rate increases by the US Fed and unstable outcome from general elections remain key risks to achieving the above.

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The author is the MD & CEO at HDFC Securities