Where Global & Indian Stocks Are Headed In 2019 ?
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Where Global & Indian Stocks are headed in 2019 ?

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The global and Indian stock markets have been booming for nearly 5 years, the markets continued its Bull Run, and along the way bear market rearing its head in a strategic fashion, many times the seasoned traders forecasted the end of the Bull market, and were found on the wrong foot. However, the year 2018 saw volatility returning, and the last quarter saw the markets bleeding profusely with deep cuts, eroding investor wealth worth billions of dollars. The media headlines turned optimists into pessimists, the sentiment negative, and as if this was not enough, the trade war between China and US threatened the secular bull market, and made investors nervous.

Global And India Stocks

In Asia, China stock market experienced a rout as it lost nearly 20% on yearly basis, Japan wasn’t far behind, followed by Philippines, who lost 14% respectively. Indian stock market continued its Bull Run and closed the year with 7% gains. Thankfully, the beginning of the year 2019 has seen the clouds of pessimism wean off, smart and seasoned investors, who sensed opportunity, began to accumulate quality stocks, keeping their bullish outlook intact. The threat of US Federal Reserve, raising the rates aggressively, has faded away, as US Federal Reserve adopted a dovish approach to its outlook. The fear of slowdown in global economies has proved to be a blip on the radar, as growth has returned.

On the global economic front, the US continued its strong economic performance. The US saw growth in corporate profits even if one was to remove the advantage of tax cuts US firms received. Though Europe and Asia are still struggling on economic front, especially China, whose economic data raised concern about its growth revival, but the US is expected to lead in recovery, even though the rate of expansion seems to be slower, yet the US economic growth is expected to be around 2.9% in 2019. The Chinese economy, which saw slowdown in PMI numbers, is expected to recover in the year 2019, as China continues to aggressively stimulate its economy.

The earnings, that have lagged so far, are expected to catch up with rich valuations, and hold the key for market recovery in 2019. The commodity prices are recovering, the crude oil, the barometer of economic activity and energy consumption, began to stabilize after fall in the last quarter of 2018, allaying the fears of global slowdown. In India, the situation is different, the year 2019, being the year of general elections, it is expected that the incumbent government will be re-elected, and a stable government is expected to continue with economic reforms and accommodative policy. The inflation, too, is expected to remain in check with crude oil prices hovering in the lower end of price spectrum. The pressure on prices of farm products, and import-export curbs are expected to keep inflationary pressures at bay.

The liquidity situation looks comfortable as FIIs continue to increase their exposure to the Indian equities. All these factors bore well for the markets in the year 2019. The earnings are expected to catch up in 2019, and provide support to the markets. The earnings can be a key catalyst for the continuance of the Bull Run. In US, analysts estimate earnings to be in the region of 20%, the best since 2010. In India, too, corporate earnings, that have so far remained subdued, are expected to gather steam as consumption rises owing to favorable domestic situation. The revival in job market is seen as a trigger for domestic consumption, thus providing support to the rich valuations. The rupee too, is expected to recover, after losing nearly 10% in 2018.

The favorable domestic economic triggers are expected to help rupee. The fear that fall of rupee against the dollar will lead to sell-off in the markets is only partly correct, besides the historical analysis shows that markets have bounced back sharply once the rupee has stabilized. The inflation is in check and the growth can pick up in the second half, this clearly supports the markets from the impact of volatility in rupee. The lower crude oil price suggests that there is no imminent risk to the markets, there is no sign of bubble yet, and the bout of corrections will provide investors with an investing opportunity in equity markets. The year 2019 is expected to be different than 2018. In 2018, markets tolerated a slew of bad news, from trade war to treasury yields worries.

In Europe too, the political situation was fluid on BREXIT front. However, the consoling factor was that volatility, measured by average from 1962, was still lower suggesting that there is not too much risk in the market for investors. Many pundits began the war cry to raise cash amidst predictions that the leading indices had fallen in bear market territory. This proved to be a false alarm, as the markets, in the first quarter of 2019, rebounded sharply and continued their upward move. For the late investor, the current level of India’s NIFTY, from low of 3000 levels seen in 2009 to the high of 11800 in 2019, might seem like living in the earthquake prone zone, he feels that the shake out is near, but, just as it is necessary to lighten the pressure on tectonic plates, the sharp corrections are required to eliminate excessive speculative element from the market.

The corrections also serve to make the P/E multiples attractive for institutional as well as individual investors. Hence, though the markets are expected to remain in pressure till elections are over, the momentum is expected to gather steam after elections. The talks about bear market and recession seem to be far fetched at this juncture, and the benchmark is expected to deliver 12% returns this year. The markets are expected to accelerate, and scale new highs, backed by improved earnings, and policy stimulus expected from the government to provide boost to consumption.