Samvat 2075 started off with the all-important state assembly elections in Rajasthan, Madhya Pradesh, and Chhattisgarh. The loss in Rajasthan was the traditional oscillation factor between NDA and Congress. However, NDA lost MP and Chhattisgarh, which it had ruled for close to 15 years. That did create a flutter in the markets about the prospects of the NDA in the general elections of 2019 and the impact was felt on the markets.
Large caps continued to outperform mid-caps
If one were to look back at the Nifty, as representative of the overall market, it returned 9.29% during Samvat 2075. If you add the 1.2% dividend yield, the returns are impressive for a volatile year. However, outperformance was highly concentrated in a handful of stocks such as TCS, Reliance Industries, HDFC Bank, Infosys, and Hindustan Unilever. Mid-caps continued to underperform for the second year in succession with negative returns of (-6.9%). The divide between the corporate haves and have-nots widened during the year.
Falling oil prices and a stronger rupee
Before Samvat 2075 started, India was already against the dual challenge of rising oil prices and a weak rupee. Brent Crude had touched a peak of $85/bbl on the back of Iran sanctions and sustained supply cuts by OPEC. This weakened the rupee to nearly Rs76/$ as the oil prices worsened the trade deficit. However, the trade war between the US and China created grave doubts over global oil demand. Samvat 2075 saw crude prices tempering to $60/bbl and the rupee strengthening to Rs71/$, largely favouring Indian markets.
NBFC liquidity crisis continued to be an overhang
The liquidity crisis began with the IL&FS default on August 2018, but the contagion continued well into 2019. IL&FS triggered a default by Dewan Housing and for the first time debt funds had to even postpone FMP redemptions. Jet Airways was the big casualty during the year exposing big chinks in the loan books of banks like Yes Bank, IndusInd Bank and RBL Bank. That is a problem that still continues to plague the financial sector and the markets too.
Interim budget gives a boost to personal spending
The interim budget announced in Feb-19 set the tone for the government approach. Personal incomes up to Rs5 lakhs were made tax-free (albeit through the rebate route) while the standard deduction was enhanced to Rs50,000. The clear idea was to put more money in the hands of individuals. That clearly reflected in equity appetite during the year.
General election celebrations begin early for FPIs
The outcome of the general elections almost became a fait accompli two months ahead of the actual outcome. With most pollsters predicting a clean sweep for the NDA, FPIs were back with a bang from March 2019 onwards. After record FPI selling in 2018, FPIs pumped in billions of dollars between March and May helping the Sensex scale 40,000.
Union Budget 2019 disappoints on multiple fronts
Budget 2019 announced a hike in mandatory public shareholding to 35%, a steep buyback tax and higher surcharge on the rich, which impacted the FPIs also. Not surprisingly, high net worth investors and FPIs reacted with their feet and almost all the gains ahead of the budget were given away. Many of these measures were rolled back, but the damage had been done.
Nirmala Sitharaman salvages some pride with tax cuts
The FM showed that it is never too late to salvage even the most agonizing situations. In a series of weekend announcements in September the FM managed to keep the markets excited by rolling back most of the controversial announcements in the budget. As an icing on the cake, the FM also offered to cut taxes from 35% to 22% for companies, provided they were willing to forego all exemptions. There was also a concessional 15% tax for new investments, which remains a salivating proposition. It could save Rs145,000cr in taxes and directly boost profits. Bulls rallied the Sensex 2000 points in a single day.
Auto sector becomes a paradigm of the economic slowdown
In the midst of the Sensex euphoria, the underlying growth story continues to remain muted. June quarter GDP was 5% and rating agencies have downgraded full year GDP growth for FY20 to 5.5%. That would be 50 bps lower than China. However, the real paradigm of the economic slowdown was the auto sector which saw sales falling steeply for 11 months in a row. Consumer confidence was blamed as was tight money conditions. Many years ago, Pedigree Inc of the US learnt it the hard way that their dog foods were not selling because the dogs didn’t like it. India is yet to figure out an answer for the inscrutable auto slowdown.
Beyond Dalal Street: Moonwalk, Section 370, and the war on terror
Market sentiments are not just about economics but about politics, too. Samvat 2075 saw a big space leap with India almost landing an aerial vehicle on the moon. In a significant move, Article 370 was scrapped and Jammu & Kashmir was reorganized with the stroke of a pen. In the midst of all these events, at no time did the government relent on its war on terror. These non-economic events were as important for the market sentiment in Samvat 2075 as the regular market events.
As we embark on a new Samvat 2076, here is wishing that it remains a year of more wealth creation and less negative surprises.