News Analysis

Indian benchmarks hit a home run in 2018

Gurumurthy K Updated on December 30, 2018

Sensex, Nifty trump peers; but small, mid-cap stocks hurt by valuation, slowdown blues

 

Year 2018 was a year of tumult for the global equity markets with indices such as the Dow Jones Industrial Average, DAX, Nikkei 225 and the Shanghai Composite Index losing over 10 per cent. But the Sensex and the Nifty 50 have managed to end the year on a high, posting returns of six per cent and three per cent. In fact, both the indices have emerged among the top three in the global gainers list.

But the gains in the benchmarks mask the pain that the rest of the listed universe suffered: just 15 per cent of the actively traded stocks managed to show gains this year. Even within the large-caps, 60 per cent of the Nifty 50 stocks and 55 per cent in the Sensex declined.

Steep valuation, governance concerns and slowing growth led to a bloodbath in mid- and small-cap stocks in 2018. After rallying strongly by 48 per cent and 60 per cent, respectively, in 2017, the BSE-Midcap and BSE-Smallcap indices tumbled 15 per cent and 25 per cent, respectively, this year.

 

A sea of red

The sectoral indices were awash in a sea of red too. With the exception of IT (up 24.6 per cent), FMCG (up 10.7 per cent) and Banking (up 5.1 per cent), all other major sectoral indices on the BSE were beaten down in 2018.

Apart from the domestic factors, record foreign money outflow from the Indian equity segments also weighed on the stocks.

In 2018, the foreign portfolio investors (FPIs) turned net sellers of Indian equities, the first time since 2011. They pulled out $4.5 billion, the second highest since 2002.

2019: What’s on the horizon?

Experts say that the current trend is likely to continue with the elections round the corner. Gautham Chhaoccharia, Head of India Research, UBS, says: “The market is still expensive, and the risk-reward equation does not support buying at the current levels. The markets can either consolidate or correct further before the elections.”

However, most experts believe that the benchmark indices are likely to perform better than they did in 2018. V Srivatsa, Executive Vice-President & Fund Manager–Equity at UTI AMC Ltd, says: “The market returns in 2019 could be an average of the last 3-4 years. Also, the market breadth could get better because stocks with inflated valuation have already corrected.”

Among the sectors, the industrial segment is likely to benefit in the election year, according to experts.

Siddhartha Kehmka, Head Retail Research, Motilal Oswal Financial Services, says: “A rush to complete projects ahead of the elections and the inflow of fresh orders after a new government is formed will drive stocks from the industrial sector in 2019.”

External factors

Apart from the elections, external factors such as global growth, crude oil prices and developments related to the US-China tariff war will also need a close watch. If the global indices continue to fall due to these factors, the Indian market may also come under pressure.

“How long can the Indian markets hold up if the global markets continue to fall,” questioned Nithin Kamath, Founder and CEO, Zerodha.

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