Large caps versus mid caps in 2019
For the second year in succession, the large cap index has outperformed the mid cap index by a margin of over 16%. Like in 2018, the mid cap underperformance continued in 2019 too. A combination of the long term capital gains tax coupled with a tough macro environment and a volatile rupee made things a lot more difficult for the mid caps. The investors preferred the safety of large caps and that was evident in the Nifty returns. Ironically, most of the positive action on the Nifty stocks came from those names that are already richly valued vis-à-vis historical valuations.
In a way, 2019 has been a return to reality for the mid cap stocks. Between 2015 and 2017, the mid caps were clear outperformers. It was a combination of falling interest rates and tepid oil prices that helped mid caps to outperform the large caps. As a result, the valuation gap had widened substantially and this looks more like a return to sanity. In fact, the mid cap index can be quite misleading as individual stock damage has been much sharper in the mid caps and much more acute in the small caps.
|NSE IT Index||+3.61%|
|NSE FMCG Index||-0.56%|
|NSE Auto Index||-13.51%|
|NSE PSU Banks||-21.23%|
There were expected gainers and losers in the sectoral space. Bank Nifty with a weightage of close to 38% in the Nifty continued to sharply outperform the markets. With erstwhile names like Kotak Bank and HDFC Bank holding on, ICICI Bank also joined the rally during the year. SBI was also a key contributor to the banking rally. IT index was in the positive but that was more due to positive performance by Infosys and TCS, while the global headwinds continued. FMCG should have done a lot better; but ITC with its substantial weightage in the FMCG index, pulled the index to almost neutral levels.
Among the laggards PSU banks could have been much worse without the influence of SBI. Media performed badly but that was more due to the specific problems at Zee and its unduly high weightage in the index. There was little surprise about autos as monthly sales fell for 11 months in succession. Metals saw compression in domestic demand as well as tepid China spending. Pharma continued to be under pressure as the US FDA has been almost unrelenting on Indian companies.
Thematic Stories – Calendar 2019
An interesting theme during the year was largely a repeat of the previous year. Once again, high beta theme grossly underperformed. High beta names got hit more by the market volatility than by the returns on the Nifty per se. in terms of stock market returns for the year 2019, a value theme would have worked better than either the growth theme or the high beta theme.
Outside of the major sectors and themes, year 2019 was also marked by scores of companies decisively imploding under the weight of contradictions. While Jet Airways, RCOM, Reliance Capital and Dewan Housing were the high profile names, scores of smaller companies like Talwalkars, Cox & Kings, McLeod Russell and many others literally vanished without a trace. The after effects of these implosions will continue to be felt in the coming year too.