Indian stock market remained highly volatile in the first half of the current calendar year because of some major domestic and global event including election, earnings, global trade war, MPC meet, NBFC crisis, weak auto sales number, etc.
After hitting their highs on the election result day, the Sensex and Nifty continued their upward momentum and hit 40,312.07 and 12,103.05, respectively, on June 3.
Most brokerage firms have raised their target price for both Sensex and Nifty on a 1-year basis, but in the near term, expect the upside to remain capped. For FY20, the brokerage firms expect the Nifty EPS to grow around 26 percent to Rs 604.
The benchmark indices, Sensex and Nifty rallied 9 percent each in the first half of this calendar year. Nifty Media was the biggest loser in the period with a fall of 19 percent, while on the other hand, Nifty Realty gained 18 percent.
Here are the five major events of the first half of 2019:
NDA's thumping victory
Indian indices got a major boost from the exit polls and results of the general elections. After the exit polls, the Nifty rallied 3.7 percent giving a clear mandate to the BJP government.
BJP won 303 of the 543 seats on its own and that brought an end to political uncertainty and instilled confidence among investors on continuity of reforms.
After rallying about 10 percent so far in the year 2019, most experts feel benchmark indices might take a breather till the full budget, which will be presented on July 5.
Reserve Bank of India (RBI) in its policy review meeting on June 6 expectedly cut repo rate by 25 bps and changed its policy stance from neutral to accommodative citing growth concerns. This marked the third rate cut of the year so far.
RBI is likely to cut interest rates by another 25 basis points in 2019 due to weak growth momentum and inflation remaining within targeted limits, Fitch Ratings said. Many other analysts also echoed this opinion.
According to Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra AMC, the repo rate cut was broadly in line with expectations. The shift in gear from neutral to accommodative removes ambiguity with respect to the direction of rate action, she added.
However, the central bank has not mentioned any special package for NBFCs barring the appointment of the working group to look at liquidity problem.
The Jet Airways saga
Shares of cash-strapped airline remained under pressure as the company was forced to suspend its operations and finally was taken to the NCLT by its lenders.
On June 20, 2019 the share hit record low of Rs 27 after State Bank of India filed insolvency petition against the company to recover dues. Country's largest lender State Bank of India approached National Company Law Tribunal in Mumbai against cash-strapped Jet Airways on behalf of the consortium of lenders.
Jet Airways shares lost more than 80 percent in the last six months.
Escalating US-China trade war
The US-China trade war worries also kept the Indian indices under pressure as two big economies kept slapping tariffs on each other leading to strained relation between them.
US President Donald Trump, worrying about his country’s trade deficits and in a bid to strengthen the US economy, introduced tariffs on most of its trade partners.
However, the US government on June 26 said it was "absolutely possible" that Trump would emerge from a meeting with Chinese leader Xi Jinping with a deal that would keep him from imposing tariffs he had threatened to put on China.
The NBFC crisis
The crisis in the NBFC sector started with a series of defaults by IL&FS last year. This had a cascading effect on the market and many other NBFCs, which have since been finding it difficult to raise funds. Banks are still wary of lending to the sector. The cost of funds rose as much as 150 basis points for NBFCs.
In the last financial year, RBI bought government debt paper worth Rs 3 lakh crore from the market. This was the only way for RBI to help NBFCs since the central bank can’t lend directly to the latter as they don’t hold government paper for use as collateral. But the cost of borrowing for NBFCs is still high.
The default by DHFL on interest payment to its debenture-holders followed by its rating downgrade by ICRA and CRISIL has raised fresh concerns on liquidity and growth sustainability of NBFCs.
CRISIL downgraded the credit rating of DHFL’s commercial paper, making its short-term unsecured promissory notes more vulnerable. CARE also downgraded instruments of the Anil Ambani group companies Reliance Home Finance and Reliance Commercial Finance.
Prasun Gajri, CIO at HDFC Life Insurance said given the current issues with NBFCs, there could be some risk aversion and investors could move away from debt funds. However, he believes that this will be a temporary phase.This is the fourth instalment of the six-part half-yearly review series. You can read the first, second and third part here.