Weaker global cues, a weak rupee and higher gold prices are expected to impact markets in 2020, say experts.
Indian markets were off to a volatile start on January 8 after Iran fired missiles at US forces in Iraq, triggering a risk-off sentiment across the globe. Brent crude oil prices surged above $70/bbl, while India gold hit fresh highs.
Investors across the globe fear a wider conflict between the US and Iran, which could weigh on equity markets across the globe, including in India.
Indian markets are trading near record high and a 5-6 percent correction could be a good entry point for long-term investors, experts say. The Nifty index is getting good support near 200-day EMA placed at 11,980.
The geopolitical tensions are sentiment-negative but the Indian market is more prone to crude price shocks, currency movement as well as growth pangs, they say.
India’s GDP growth in FY19-20 is expected at 5 percent as compared to 6.8 percent in the year-ago period, the first advance estimates released by the ministry of statistics say.
Any increase in the price of crude oil is always going to be a cause of concern for India, which meets more than 80 percent of its oil needs through imports. A bigger import bill will risk breaching fiscal deficit target.
“The Indian market is reacting more negatively than other emerging markets due to crude oil impact. Since our dependence on crude imports as a percentage of consumption is the highest, the impact on the economy and markets is also higher. Along with crude, the negative impact of currency is also weighing on Indian markets,” Rusmik Oza, Sr. VP (Head of Fundamental Research-PCG), Kotak Securities Ltd, told Moneycontrol.
“The geopolitical tension has increased the risk of unknowns which is getting factored into the market. Just before the event took place, India’s Nifty-50 index was trading in a new zone on the back of budget expectations. However, a forward PE of Nifty-50 at 19x was close to its previous peak, which made it susceptible to any external shock.”
If the US- Iran tensions do not escalate, then there could be some near-term support or bottom formation around the 11,600 levels, which is the 200-DMA for the Nifty, he said.
“A 5-6% correction from the peak levels could be a healthy one for the long-term market sentiment,” Oza said.
A 5 percent correction from a record high of 12,293 will take the index towards 11,678, which is closer to the 100-day moving average placed around 11,612, and 200-DMA placed near 11,595.
“Stability in crude oil prices and currency seems to have provided temporary relief to investors. Nonetheless, geo-political developments would still be one of the key factors on investors’ radar, as any further escalation would have an adverse impact on markets and economy,” Ajit Mishra, VP-Research, Religare Broking, told Moneycontrol.
"Global market situation is tense on escalating tensions in Middle East. Focus over the next few days will be on the macro developments but soon as earnings start, focus should shift to corporate earnings," Naveen Kulkarni, Head of Research, Reliance Securities.
"The Nifty 50 index has good support at 11,850 levels and one can expect a bounce from there. On higher side 12,200 will act as resistance which is the last month close and recent high after the correction."
What should investors do?
Stability in crude prices, as well as rupee, will act as a tailwind for India markets, but slower GDP growth in FY21 could cap upside potential in the near term.
History suggests that any dips caused by external factors such as geopolitical concerns are best used for long-term wealth creation.
The year 2020 started with the US-Iran standoff due to which equities have tumbled from all-time highs. Investors should use dips and allocate the majority of the portfolio (equity) towards largecaps and remaining in quality mid & smallcaps.
“Weaker global cues, a weaker rupee, higher gold prices are expected to impact markets in 2020. An ideal portfolio should be designed keeping in mind the global risk while covering volatility,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor, said.
He said consumption and infra stocks were expected to dominate 2020, and IT stocks could be the X- factor and generate handsome returns. “T20 portfolio should be a mix of FMCG, IT and cement stocks,” he said.
Investors should populate at least 60 percent of the portfolio with largecap stocks and the remaining 40 percent with quality mid-smallcap stocks at any correction.Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.