By DK Aggarwal
Calendar 2018 was an eventful year and numerous moving variables led to heightened volatility in the stock market. Markets across the globe came under pressure as growth worries intensified following trade war tensions and now a US government shutdown.
Concerns over the same have been voiced by the many central bankers across the globe and we hope these may lead to lower pace of tightening or a pause by the central banks to support growth in their respective economies. This, in turn, will support stock markets. On the flipside, the Fed has already planned two more rate hikes instead of three, and those would dry up some liquidity in the emerging markets like India.
Back home, the silver lining is that the macro parameters such as oil prices, bond yields and liquidity, which ruined market sentiments in the 2018, now appear to have turned favourable. From the peak of $80 a barrel hit in early October, oil prices are now hovering at around $50. A drop in Irans oil production/exports from May 2019, when US will remove its exemptions for eight countries still importing oil from Iran, may restrict supplies and push up crude oil prices.
The Indian stock market saw a net outflow of $4.58 billion in 2018, the steepest selloff in a decade. Yet, India did well compared with other emerging markets, and the reason behind it was the large flows coming through domestic institutions. As India grows, we will continue to see the clout of domestic investors grow, as that of foreign players.
Strong consumer loan growth and rising real income will boost consumer discretionary spends, whereas a likely turn in private capex (capital expenditure) cycle and strong public capex should will continue to boost the overall economy and corporate earnings.
Undoubtedly, investors would be looking forward to a US-China trade deal in 2019, but the real effect of withdrawal of quantitative easing programmes by major central banks and slowing global GDP growth would continue to haunt them.
Back home, any fiscal slippage, RBIs interest rate trajectory, outcome of the general elections and the revival of corporate earnings would be key monitorables.
Meanwhile, fundamentals of the economy, such as increasing tax compliance and collection and infrastructure building, seem to have firmed up, giving momentum to the broader economy. It means Calendar 2019 might as well turn out to be a year full of ups and downs depending on how these variables pan out!
(DK Aggarwal is Chairman & Managing Director of SMC Investments & Advisors)