How did the Nifty and Sensex pan out in 2019?
Even a cursory look at the chart of the Nifty and Sensex is enough to give you an idea of the number of times the indices have scaled new highs in 2019. Each time the indices have corrected, they have come back with a vengeance. It has been a year of ambivalence, domestically and globally. The trade deal continues to be elusive and BREXIT uncertainty has led to another election in Britain. Oil continues to be a question mark, although the trade deal uncertainty has kept oil subdued at around $60-63/bbl. Domestically, the GDP had slowed and IIP and core sector growth slipped into negative territory. That is why; the new highs become a lot more special. Here is what drove these new highs.
February High – Interim Budget effect
The Sensex breached 38,000 levels post the interim budget. Although it was christened an interim budget, Piyush Goyal gave a big thrust to spending power. Apart from the push to infrastructure spending, there was a big relief on the personal tax front with income up to Rs5.50 lakhs being made tax-free. The combination of infra spending, rural focus and liberal tax cuts were supposed to act as a catalyst for the stock markets. The Sensex certainly did not disappoint as it breached the 38,000 mark for the first time in its history.
Late March highs: pre-poll surveys hint at a decisive NDA win
The general elections were always going to be the big event during the year. By late March, the first pre-poll survey hinted at a clear advantage for the ruling NDA. Markets rejoiced as it was a hint that the reforms process would continue with stability at the centre. The surge began with FPIs turning net buyers in Indian equity.
However, the Sensex failed to breach the 40,000 mark decisively even as the Nifty stopped short of the 12,000 mark. After all, pre-poll surveys were pre-poll surveys and they had to be taken with a pinch of salt. While the markets did show a lot of initial enthusiasm, it tapered as the resistance was too strong for the market to breach.
Late May highs – NDA was back with a bang and set high expectations
Most pre-poll surveys were not just right but they were precise to the last decimal. The ruling NDA swept the general elections with an unprecedented mandate with most of the BJP allies also performing extremely well. Results day gave the first opportunity for the Nifty to breach 12,000 and the Sensex to breach 40,000. Markets built hopes that the government would launch second generation reforms in its July budget. However, that was not to be. The budget announced higher public shareholding, tax on buybacks and higher surcharge on FPIs and the super rich. That led to a sharp sell-off by FPIs leading the Nifty and the Sensex to its pre-election levels.
Come September – and the bears are forgotten
September 20th was a kind of a watershed for the indices. The finance minister announced an unprecedented tax cut for corporates from 30% to 22% with a net saving of 9.76% including surcharge and cess. Of course, exemptions had to be foregone but it hardly made a difference to most Indian companies. The shift to the new tax formula was quick and Sensex celebrated on the same day with a 2200 point rally. It took the Sensex another 2 months to decisively breach the 40,000 but the stage had been set in September.
November brings the decisive breach
While the tax cut euphoria persisted, November saw more things favouring the indices. The trade deal looks imminent and the Conservatives again have an edge in Britain. OPEC is not cutting supplies further so India has less to worry about the trade deficit. IBC was finally beginning to make a difference and government had drawn out an ambitious privatization plan. The stage was set for the decisive breach
As we write, the Nifty is decisively above 12,100 and the Sensex is comfortably above 41,000. If there is one stock that defines these levels, it is RIL touching a market cap of Rs10 trillion! Interestingly, around the time when the Sensex was launched, RIL had a market cap of just Rs10 crore.