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'Risk-reward for market looks positive in 2020; global, local factors to influence direction'

2020 on a risk-reward basis looks positive, starting with the expectations of the Budget. However, the bigger story is that the coming year is likely to be the start of a strong structural positive run on the economy led by formalization, backed by landmark legislations such as GST, IBC and RERA.

December 26, 2019 / 09:43 AM IST

Vaibhav Sanghavi

We all know how exciting is 20-20 cricket which is a shorter duration match. Imagine the same level of excitement extending to the test match, wouldn’t it be great. I expect markets to provide that long term 20/20 cricket performance with the year 2020. I had mentioned that 2019 is going to be a volatile year wherein I would be happy if the markets deliver a 15 percent return, should the earnings match up. Also, it would be difficult for markets to re-rate higher, while preference would continue to be large caps with a monetary policy which may turn dovish.

Looking back, the events which define 2019 were - super dovish monetary policy (interest rates and liquidity), big election mandate, weaker than expected GDP print and corporate tax rate cuts. These events are likely to have a substantial bearing on the economic and market performance in 2020 and beyond.

2020 Outlook:

For 2020, from a global perspective, we see slow economic recovery aided by improving PMI data especially from the Eurozone, a US-China trade deal in sight, continued accommodative monetary policies (lower rates and QE programmes) and a fresh thrust on fiscal measures.


As we see recovery coming to Eurozone along with China stabilizing, we see a potential of USD weakening. This should aid the recovery of emerging markets and other risk assets, thereby attracting capital flows to India as well. While it isn’t likely to be linear and smooth, it is likely that there would be periods of volatility as we see the potential of rates hardening with inflation inching up. However, to sum up, from a global perspective, the environment is risk positive.

Domestically, the weaker GDP print in the previous two quarters is likely to bottom out and we expect revival from hereon. The weakness of the earlier two quarters was a result of one of the highest real interest rates in the previous year, consistent negative liquidity and NBFC crises leading to negative consumer sentiment.

We have seen big changes in these variables. Interest rates have reduced, liquidity is consistently surplus and NBFC problems have peaked out. As the transmission of rates happens, we estimate credit growth to pick up, leading to a revival in consumption.

With respect to investments, the effect of the corporate tax cut and continued capex spending by the government should help a gradual recovery. From the perspective of the rural economy, monsoons were good and the reservoir levels are better, leading to better agriculture growth. And as food inflation is looking up, the income levels should inch up as well leading to better consumer and business confidence.

While I do not expect the recovery to be V-shaped, but more importantly, it is likely to be consistent and long term as the building blocks are in place with further few measures expected (rationalization of direct tax) to come.

Markets are likely to take a cue both from global and domestic macros and an expectation to recovery with a positive risk environment should help the performance. Even though the shorter term data can be patchy, it isn’t likely to discourage investor sentiment as sights lay on larger long term sustainable recovery.

Earnings have got support from corporate tax rate cuts and recovery will strengthen as wider economic growth improves aiding market performance.

There are a few risk factors as well which should be watched for. Any failure on the trade deal to materialize, hawkish fed monetary policy leading to stronger US dollar, geopolitical events, change in climatic conditions leading to higher food prices and thereby food inflation etc will have the potential to disrupt the constructive market outlook.


2020 on a risk-reward basis looks positive, starting with the expectations of the Budget. However, the bigger story is that the coming year is likely to be the start of a strong structural positive run on the economy-led by formalization, backed by landmark laws such as GST, IBC and RERA.

The author is Co-CEO, Avendus Capital Alternate Strategies.

Disclaimer: The views expressed by experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol Contributor
first published: Dec 26, 2019 09:43 am

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