2018 – A Year of Reversals
2018 was a year of reversals. Globally, most asset classes were in the red due to macro concerns, especially volatile crude oil prices, strong USD and rising yields. Geopolitical events kept investors on tenterhooks and domestic events such as tightened liquidity and State elections added fuel to the fire. Secular growth in the equity markets seen in 2017 gave way to volatility in 2018 globally, and India was no exception.
2019 Outlook – World View
Looking forward, in 2019, we expect to be on a steady wicket and anticipate the macro backdrop to become supportive of markets. With the US expected to see a soft landing, we will see a dovish Fed and USD strength will start abating. The macro fundamentals for India will be stable with range-bound oil prices, stable INR, benign inflation, and manageable twin deficits. The tight liquidity situation has also eased off and system liquidity should be back at neutral by Mar’19.
2019 Outlook – India View
India will continue to see steady economic growth with a marginal improvement in FY20E. The key driver will be secular growth in private consumption, supported by investments, particularly in infrastructure.
Private consumption will continue to be on a steady growth path driven by demographics, rising urbanization and premiumization, and shift from unorganized to organized. With a large middle class and growing affluent class, discretionary spending will increase going forward. Government stimulus in an election year will give a boost to rural consumption.
Also, FPI flows have generally picked up after election uncertainty is over. Clearly, while elections can lead to short-term blips, the market reverts to fundamentals shortly thereafter, and market performance will be driven mainly by the strength of the economy.
Themes of interest for 2019 are expected to be Financials i.e. Private banks, Corporate banks and select NBFCs, and Consumption i.e. Consumer and Consumer Discretionary.
Source: ABSLAMC Research
USD: US Dollar; NBFC: Non-banking Finance Company; RERA: Real Estate Regulatory Authority; FPI: Foreign Portfolio Investors