The benchmark indices continued its rally in the year 2019, hitting fresh lifetime highs amid volatility. The economic slowdown coupled with global and domestic cues such as trade war concerns, and the policy and reforms such as tax proposals for India Inc, rate cuts by the Reserve Bank of India, foreign portfolio investors (FPIs) were some of the key
factors that guided markets through 2019.
Going ahead, the market will be driven by macro-economic tailwinds. Receding global trade war fears, continuity of enabling government policies, benefits of low-tax structures for corporates, good monsoon, low-interest rate regime, the low base of CY19 will turn sentiment around, leading to higher consumption. Improving economic outlook along with favourable policies should see FPIs returning.
We expect 2020 to be a story of two halves. The first half will be dominated by growth slowdown and concerns around fiscal stress. And the second half can see some recovery in macro growth and pick-up in corporate earnings. It is expected that the market divergence/polarisation to improve and markets to get more broad-based in the second half.
We expect growth to have bottomed out at 4.5 percent for GDP in the September quarter. However, we believe the recovery will be very gradual. We expect Mid-caps to do better vs. Large-caps in 2020 as growth revives and earnings improve.
We do expect the earnings to start looking up from FY21 led by low base of financials and pick-up in automobiles after 3 years of tepid performance.
Sectors to focus in 2020:
Private sector banks: Retail-focused private sector banks to do well along with a few large corporate-focused banks which have turned-around in FY20. (Stocks on focus – ICICI Bank, Axis Bank, State Bank of India)
Auto and Auto ancillary: It is expected that the auto sector, including auto ancillary segment, to do well in 2020.
Pharmaceutical: Remains bullish on the pharmaceutical sector. (Stocks on focus -Alembic, Torrent, Cipla, Natco and Sanofi)
Specialty chemical: Given the ongoing shift of production from China to India, they expect the specialty chemical sector to continue to do well, which could further be accelerated given the corporation tax rate cut.
Cement and Capital goods: It is expected that the cement and capital goods sector to do well in 2020.? (Stocks on focus – Larsen & Toubro, ABB, Siemens, Ultratech and JK Cement)
FMCGs: Fast-moving consumer goods will perform well in coming year (Stocks on focus -Hindustan Unilever and Colgate Palmolive)
Hospitality: It is expected that the hospitality sector that has subdued performance in 2019, ?to do well in 2020. (Stocks on focus -Indian Hotels)
Sectors that had performed well over 2018 and 2019 could take a breather. Within these, the leaders (whether brand or scale) could be the ones to watch out for. However, for over-leveraged companies, the ride could be bumpy.
Investors should stick to leaders in categories where the growth horizon is not under threat. Focus on earnings visibility, management quality and yet do not overpay for the same. Allocate 10-20% of your portfolios to selected good quality mid & smallcap stocks that are available at a deep discount, as chances of high returns is possible in these space once the market shifts to a broad based.
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