The past year was a mixed bag for investors in Indian stocks. Key indices registered small gains while the broader markets turned laggards. The comforting element, however, was that overall the markets witnessed gains. Both the Nifty50 and Sensex30 ended the year with gains of 3.5 per cent and 6 per cent respectively. The gains though small are significant in that this happened when global markets got a battering. The US gauge lost 6 per cent while the European benchmark fell by 14 per cent and the Chinese composite tumbled by as much as 25 per cent in the full year.
The Indian markets do not seem to be having much upside in 2019. The downsides that held back the market rally in the past year are likely to persist in the coming year as well. Factors such as an appreciating dollar, rising US rates, sanctions on Iran and trade wars between the US and China, albeit the past week saw a welcome lull in the bilateral tensions between the two largest economies of the world, are likely to be carried forward to the current year. The slump in the small-cap and medium-cap stocks that prevailed during most part of the past year may persist this year, too, foreclosing the possibility of a quick turnaround in the fortunes of retail investors. Even performance of bellwether stocks in 2019 will be watched.
Volatile oil prices in the international markets, general elections coupled with assembly elections in a few states, including Odisha, and the populist policy-making in the run-up to the polls are likely to negate a quick revival in market conditions. Governments will find it really difficult to resist the temptation of announcing sops for quick electoral gains. It is also unlikely that foreign portfolio investors (FPIs), who had bought into Indian stocks only to quickly offload it, will be in a hurry to raise their India allocations. Another key factor that could also play spoilsport is fewer investible stocks that could otherwise have created traction in the markets. Both FPIs and domestic investors will have fewer avenues for investment in 2019 as there will be constraints on the supply side in 2019. Stagnancy in the primary market may continue until a new government takes over at the Centre. This won’t happen before June 2019.
It is expected that the RBI under the new governor may be more than willing to play ball with the Centre. Its announcement Tuesday allowing a one-time recasting of debts up to Rs 25 crore of companies in the micro, small and medium enterprises (MSME) segment is enough of an indicator that the Centre may no longer have to play hardball with the central bank when it comes to easing credit to corporate sector. In fact, this was one of the key factors that led to the exit of Urjit Patel. The decision will help MSMEs, which are facing a cash crunch in the wake of the demonetization, and GST rollout. To be eligible for the scheme, the aggregate exposure, including non-fund based facilities of banks and NBFCs to a borrower should not exceed Rs 25 crore as on January 1, 2019. The RBI’s latest move is certainly a dilution of its policy of prompt corrective action (PCA) that it had enforced on 11 public sector banks with high NPAs. A relaxation in PCA norms will help all state-owned banks kick-start lending to MSMEs. This will make a big difference to creating jobs as the MSME sector has employed 12 crore people which is second only to agriculture. Overall, the Indian markets will see an encore in 2019. Domestic investors will have to see a bumpy ride in terms of returns in the first half of the year.