With subdued growth in GDP along with geopolitical uncertainties, 2020 might repeat the show and investors might continue to play safe.
The year 2019 was highly dramatic and eventful. Market indices that had a heavy weightage given to largecaps, continued to achieve new highs on a combination of expectations of interest rate cuts and optimism.
Narendra Modi's re-election, RBI's repo rate cuts by 135bps and geopolitical tensions making crude oil prices volatile were few factors that were the key drivers during the year. The other factors were the Pulwama attack that aggravated the tension between India and Pakistan, revoking of Article 370 and Article 35A from the Constitution and The Citizenship (Amendment) Act, 2019 passed by the Parliament of India.
To summarize, the year was full of uncertainty and the investors were desperately seeking investment opportunities in the capital market where they could find themselves in a comfortable space. Investors hence turned to buying stocks that provided reliability in terms of business model and earning growth along with stability in corporate governance.
A few examples of such stocks include ICICI Bank, Reliance Industries, Kotak Mahindra Bank, HDFC and HDFC Bank. It is very interesting to find that these stocks have a weightage in Nifty which ranges from 5.50 to nearly 11 percent, and thus as a result stretched the index to its all-time highs.
The broader market has not performed that well during the year, as midcap and smallcap generated meek returns compared to large cap stocks. One of the reasons behind this is that higher amounts were invested in largecap funds which contributed major portion of the market investment into good quality largecap stocks.
These stocks keep higher weightage to Nifty50 stocks and hence Nifty witnessed a surge by 11.53 percent in the calendar year 2019.
With subdued growth in GDP along with geopolitical uncertainties, 2020 might repeat the show and investors might continue to play safe. However, Q3 results have commenced and we can see a turnaround for midcaps and smallcaps. Union Budget 2020 and US presidential elections can be expected to drive the rally in Indian and international markets in the coming time.
(The author is Head of Research at CapitalVia Global Research Limited- Investment Advisor.)
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