The calendar year 2019 saw Nifty crossing 12,000-level, supported by select names that remained at the centre of investors' interest.
The benchmark indices traded higher as the government has swung into action and the hopes that more measures, like corporate tax cuts, will come through grew stronger. Many even expect refreshing changes in personal income tax slabs in the upcoming budget.
"We believe a global risk-on rally has also resumed with the quantum of negative-yielding bonds reducing and the trade war cooling off. In the case of India, the earnings yield of equities is very attractive vis-a-vis fixed income," said Amar Ambani, Senior President and Research Head - Institutional Equities at Yes Securities.
On the sectoral front, major outperformance was registered by energy and financials sectors for the calendar year followed by technology while major underperforming sectors were industrials, consumer discretionary and utilities.
Midcaps and smallcaps, however, have been in a consolidation phase since the start of 2018.
"The bright side for equities is our long-term bearish outlook for oil and commodities in general, low core inflation and a good monsoon. Things are also looking up for bad asset resolutions after Essar settlement in NCLT recently," Ambani added.
Let's take a look at how some sectors fared in the year 2019.
In 2019, BSE Bankex index is up 21 percent against the 15 percent rise in Sensex as of December 23 close.
Financials witnessed a cleansing sort of activity during the year, experts think.
"IL&FS crisis separated the men from the boys in the financial service sector and thus, the companies with higher contribution from retail along with lower ALM duration mismatch witnessed strong re-rating. The companies from Assets management, retail NBFC’s and life insurance space rallied along with private banks in CY19," said Asutosh K. Mishra, Head of Research - Institutional Equity at Ashika Stock Broking.
Mishra, however, thinks that in the calendar year 2020 (CY20) this rally may cool off partially as the valuation of many of these companies has reached way higher than any international benchmark.
Rajeev Srivastava, Head-Retail Broking at Reliance Securities is of the view that credit growth remained a key challenge for the banks during 2019 driven by weak private capex, demand related concerns, increased risk aversion with banks and capital constraints faced by the PSBs.
Stress in select corporates and higher slippages from the agri and SME sectors continued to impact the sectoral asset quality.
Srivastava believes RBI’s 135bps cut in repo rates since the beginning of the year along with government measures to resolve system bottlenecks will support a gradual recovery in growth and asset quality trends.
Banks have also strengthened their balance sheets with a sharp reduction in RWA/total assets over the last 2 years.
"We believe the large banks including ICICI Bank, HDFC Bank and Axis Bank, with lower residual corporate stress, higher relative gains in costs of funds against peers, and better growth prospects are favourably placed over the medium-term, given expectations of a gradual recovery," Srivastava said.
Consumer (FMCG & Retail)
BSE FMCG index is down 3 percent in calendar year 2019, with ITC down 15 percent and Hindustan Unilever up 7 percent.
Most of the consumer companies reported moderation in growth amid a higher base and slowdown in rural spending.
"Companies continued to focus on widening penetration via direct reach. Trade-channel liquidity seems to be easing and volume growth likely to revive as the base is likely to become favourable going ahead," said Srivastava of Reliance Securities.
Experts are of the view that most of the retail companies are likely to add their presence in Tier II/III towns, catering to branded aspirations of the consumer in the coming year.
For the coming year, Srivastava of Reliance Securities expects Titan, Trent and Aditya Birla Fashion and Retail to report strong double-digit growth in operating profits among retail companies. Among the FMCG companies, Hindustan Unilever, ITC and Dabur are likely to report mid-to-high single-digit volume growth in 2020, said Srivastava.
BSE IT is up 11 percent do far in 2019.
IT majors TCS and Infosys reported mixed performance in terms of CC revenue growth, with TCS underperforming by a wide margin compared to last year's performance.
However, domestic IT companies continued to witness decent traction in their order inflows, but execution led challenges were the major concern during the year.
Rupee's rise against the dollar and concerns over H1 B visa rules continue looming on the sector. Over the last two years, midcap IT companies have outperformed their largecap peers, in terms of growth.
However, over the last year, the trend appears to have reversed, with many Indian IT companies reporting multi-year multi-billion-dollar deals.
"As we have seen with tech disruptions before – as the digital domain will mature, the deal sizes will increase. At that stage, large-caps will give stiff competition to these midcaps, making it difficult for them to survive and grow," said brokerage firm Phillip Capital in a report.
Oil & Gas
BSE Oil & Gas has gained 8 percent so far in 2019.
Fall in average crude prices led to the lower realisation of ONGC, which dragged its earnings. Reliance Industries’ earnings growth is backed by strong operating performance of R-Jio (telecom) and retail.
"Subdued gross refining margin led to a major fall in the earnings of the OMCs. Moreover, lower spot LNG prices boosted the City Gas Distribution companies’ gross margin, while the rise in LNG import improved Petronet LNG’s re-gasification volume. GAIL’s petrochemical, LPG and gas trading segment disappointed on the margin front, which led to lower earnings," said Srivastava of Reliance Securities.
As per brokerage firm HDFC Securities, City gas distribution (CGD) companies are expected to deliver robust volume growth in near-term owing to favourable global macro scenario as well as the conducive regulatory policies in India. Their capex intensity is likely to remain high in the medium to near-term.
While demand momentum was adversely impacted during 2019 led by a slowdown in governments’ spending and liquidity constraints, a sharp pricing recovery from the beginning of February 2019 was the key factor for the cement companies to deliver healthy double-digit earnings growth during the year.
"Benign fuel prices were also supportive during the quarter. We have seen a decent rally especially in Northern and Central based companies like JK Cement, Shree Cement and Heidelberg Cement India due to sharper price recovery and relatively firm demand during the year," said Srivastava of Reliance Securities.
The BSE Auto index is 12 percent down as of December 23 close in the year 2019, with Cummins India and Mahindra & Mahindra down 35 percent in the same period.
General liquidity crunch followed by the NBFCs crises, implementation of new BS-VI emission norm from 2020, permission for higher axle load for trucks and slowdown in rural economy impacted the automobile volume during the year.
Auto packs have sharply underperformed during the year and the year witnessed a sharp downward revision in earnings of companies.
Experts are of the view that the sector may see a revival after the signs of economic recovery will start getting stronger.
BSE Metal is down 15 percent this year.
The US-China trade war and the poor health of auto companies hit the demand of steel and aluminium. The metal sector remained under pressure in CY19 and their sectoral index on NSE declined 14 percent as of December 23 close.
Domestic brokerage firm Edelweiss Securities is of the view that global steel prices staying above the anti-dumping level provide domestic steel prices ample room to grow as it makes imports from key countries such as South Korea, Japan and China unattractive. However, subdued local demand, particularly in flats, is the biggest resistance for domestic prices.
Pharma and healthcare
BSE Healthcare index is down 4 percent this year.
The healthcare sector managed to be stable whereas the core pharma sector's health started to improve in late 2019. The healthcare sector’s average gross margin remained broadly flat for the year. However, it has improved about 300bps over the past four years. With the exception of Fortis (down 420bps), EBITDA margins improved nearly 40bps mainly due to mid teens revenue growth and operating leverage, said Edelweiss Securities.
BSE Realty is up 24 percent in 2019 so far.
Experts point out that India’s housing market has been in the doldrums for long, battered by muted sales, piling inventory, stagnant-to-falling prices and an acute liquidity crisis.
A consolidation wave is sweeping through India’s realty sector. This is driving outsized market share gains for organised developers while leaving smaller players struggling to survive, said Edelweiss Securities in a report.
"Consolidation in the office space has meant that top-4 financial institutions (along with their developer partners) now own more than 20 percent of the overall office space in India. We believe, this will ensure that demand-supply dynamics remain favourable in the future as well and vacancies will sustain healthy at about 14 percent run rate. This is inducing financially strong developers like DLF, Oberoi Realty and Sunteck Realty to enhance their presence in office space segment," said Edelweiss Securities.
A slowdown in new ordering led by funding issues, delay in land acquisition and regulatory clearances took a toll on most of the infrastructure companies and consequently their stock performances.
Further, project cancellation, especially in Southern states and liquidity constraints due to drying finance from NBFCs, also hurt the sentiment. Brokerage firm Reliance Securities expects 2020 should generate ample opportunities in roads, metro, water and airport segment for the infrastructure companies.
Capital Goods and engineering
Liquidity stress in banking space and demand-side issues continued to delay the capex recovery. The capex in the economy continues to be driven by the government and public sector mainly in the areas of transportation (roads, railways and metro projects), power (renewables and T&D) and defence (mainly towards indigenisation).
Experts point out that short-cycle orders with decent healthy cash flows aided the companies like Voltas, Kalpataru Power, ABB India and Crompton Greaves Consumer. On the other hand, companies with low order inflow, weak balance sheet, high debt and higher working capital requirement relatively underperformed.
Agrochemical and fertiliser industry was marred by subdued sowing in Rabi 2018-19 followed by the delayed and deficient start to the southwest monsoon.
The domestic agrochemical industry too remained sluggish over the said period. However, a late revival in monsoon led to a back-ended pick-up in Kharif sowing along with strong storage levels across reservoirs augur well for the current Rabi season. "The industry has been well on track for a turnaround, the signs of which have been prominent since November 2019," said Reliance Securities.Disclaimer: The views and investment tips expressed by investment 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.