Earnings growth, domestic liquidity and crude prices to decide market direction

Nishant Agarwal

The year 2018 will be remembered as one which tested patience and temperament of investors across asset classes – whether equities, fixed income or real estate.

For equities, the headline point-to-point Nifty performance figures (CTYD: +3.1%) not only hides the extremely volatile journey during 12 months but also does not adequately represents the correction in broader markets especially mid-cap and small-cap segments (Nifty Midcap 100: CTYD: -15 percent and Nifty Small Cap 100: CTYD2018: -29 percent.

For the fixed income markets, the challenges around liquidity and credit funds post IL&FS default was not the only reason troubling investors. Extreme gyrations in 10-yr. G-Sec yields also made investing in high rated papers/funds equally difficult.

Nishant Agarwal

Managing Partner & Head - Family Office|ASK Wealth Advisors

Real estate continued its muted performance of last few years with fewer new launches and very slow sales in existing projects.

Commercial real estate, dominated primarily by some large global institutional buying, Indian startups finding suitors and interest from large strategic and financial investors and the continued flow of large domestic retail /SIP money in equity mutual funds were some of the positive developments for Indian financial markets.

As we move to 2019, some of the key themes affecting market returns will be the continuing trends of improving earnings growth, domestic liquidity from retail investors and crude prices considering ever-changing geopolitical equations.

There could be some positive impact on domestic consumption with increased government spending in an election year, but it also poses the risk of deteriorating fiscal discipline keeping inflation, interest and currency levels at risk.

While General Elections in the middle of 2019 will be most talked about and speculated factor for market performance, a study on past elections results and its correlation to market performance clearly indicates only heightened short-term volatility with not much meaningful medium to long-term impact.

Regulatory changes around NBFCs, credit rating agencies, bringing 12 PSU banks outside the PCA are some developments which might lead to some shuffling of financial services stocks in portfolios.

IPOs and Pre IPOs-which were the hottest segments in the first half of 2018 might continue to remain somber at least for the first half of 2019.

Appetite amongst investors for high Yield/structured debt fund will be muted as well with investor preference more towards hold to maturity 2-4 yrs. FMPs and high rated short-term bond funds.

Similarly, alternate products like AIF, with some hedging/long short strategies may gain better acceptance among investors. Lastly, for private equity, Real Estate, and venture capital investors, 2019 will be tested more for returns and exits on investments made over the last 4-6 years.

As it is clear from the points above, the road to successful investment strategies are full of many ifs and buts with no clear predictions coming from clear crystal ball gazing.

Hence, like always, the most time-tested and proven strategy for investors will be to maintain disciplined asset allocation and stay away from the temptation to make too many short terms adjustments based on daily and weekly commentaries.

(The author is Managing Partner & Head - Family Office, ASK Wealth Advisors)