The Indian equity market had a strong showing in 2o19 aided by liquidity, favourable global cues and government measures which gave bulls the hope of recovery in the face of an economic slowdown.
The BSE Sensex rallied 15 percent and the Nifty50 surged nearly 13 percent so far in the year and hit historic highs despite the weak macros and slower earnings growth. However, the BSE Midcap and Smallcap indices underperformed frontliners, falling 3 percent and 8 percent respectively.
Benchmark indices are expected to continue its upward march in 2020 with experts suggesting that the rally will finally get broad-based.
"After the recent rally, we believe that the Nifty at around 18x FY21E P/E captures the expected earnings recovery. While the upside from current levels may be capped – the current momentum can continue in the near term on the back of strong liquidity flows and positive sentiments," Siddhartha Khemka, Head – Retail Research at Motilal Oswal Financial Services told Moneycontrol.
He expects the participation of quality midcaps to increase going forward, given their significant underperformance and discount to larger peers. He further expects the market momentum to continue in 2020 on the back of global economic revival, earnings growth, liquidity and any further announcements from the government to boost demand/consumption.
In 2019, the rally was limited to select frontliners and a big divergence was seen in the performance of Nifty compared to mid/small-cap indices. The market has clearly rewarded quality, growth and steady business irrespective of their market cap.
"A major theme for 2019 was corporate governance and companies with a good, clean management were rewarded handsomely – a theme which may well continue in 2020 as well. With earnings growth set to improve, we expect more stocks to participate and perform in 2020," Khemka said.
In 2019, the FIIs turned net buyers and pumped in nearly Rs 87,000 crore into Indian equities. The change in the US interest rate trajectory and several measures by the Indian government to revive the economy resulted in the buoyant mood of the FIIs.
The mutual funds too participated as fund managers pumped in nearly Rs 49,000 crore in 2019 led by a steady SIP inflow of Rs 8,000 crore.
Going forward, Religare Broking expects concerns (including recent spike in inflation, growth yet to pick up and possibility of fiscal slippage this year) to subside in the coming quarters and expects a gradual recovery in the domestic economy.
Besides, with positive signs on the trade war front and US Fed dovish stance, it expects a recovery in global economic growth as well.
Religare Broking believes that 2020 could very well be the year where it would see strong outperformance from mid and smallcap stocks due to a) valuation comfort, given the sharp correction, b) anticipated economic recovery would improve growth outlook for these companies leading to better earnings.
"Further, it is being observed in the past that midcap and smallcap stocks do well in a declining interest rate scenario which is the case currently as the transmission of rates from banks have yet not started," the brokerage said.
"However, we do not expect the rally to be broad-based as seen in 2017 and would recommend investors to remain selective in this space and stick with quality names with strong corporate governance and sound fundamental track record," it added.
Here are the New Year picks which are expected to give a double-digit return in 2020:
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