Samvat 2074 was a challenging year for equity markets. Rising interest rates and bond yields, spike in crude oil prices amid a sliding rupee, confusion over imposition of long-term capital gains tax (LTCG), rejig in parameters that define mid-and small-cap schemes and the collapse of IL&FS that snowballed into liquidity crunch in non-bank finance companies (NBFCs) were some of the factors that impacted sentiment.
Experts say volatility is likely to continue in Samvat 2075 as well, owing to a politically heavy calendar (upcoming state elections and general elections scheduled for 2019) and macro challenges emerging from rising crude oil prices and widening fiscal deficit. That said, the sharp correction has made valuations attractive for select stocks, which they say, could provide opportunity for long-term wealth creation.
“We can divide the outlook for Samvat 2075 into two halves. The first six months from now till the general elections could be challenging and filled with risk-aversion. The second half could be a function of (general) election outcome and markets reverting back to earnings growth and valuations,” says Rusmik Oza, senior vice – president and head of fundamental research at Kotak Securities.
Here are five key factors that are likely to impact market sentiment in Samvat 2075:
Elections: The outcome of assembly elections in five states – Chhattisgarh, Madhya Pradesh, Mizoram, Rajasthan and Telangana slated for November and December – is one of the key factors that will decide the near-term market movement. That apart, pre-poll alliances and the actual outcome Lok Sabha elections early 2019 will be key.
Crude oil: Another major factor that investors will keep an eye on is crude oil prices that hit a high of $86 per barrel for Brent before cooling off to around $73/barrel levels. New US sanctions on Iran begin on November 4. Experts say it would be an important development and the markets will keep a tab on how prices play out post the development.
Rate hike and trade war: Global trade war and risk of further rate hikes by the US Federal Reserve (US Fed) also pose headwinds for the equity markets at the global level. With the US economy strengthening, the US Fed has been on a rate hike path. This, in turn, has pushed the US 10-year yields above three per cent, thereby, leading to reversal of flows from emerging markets to the US (both from bond and equity markets).
That apart, the US is likely to impose full 25 per cent import duty on goods worth $200 billion (from Jan’19). If this materialises, then there could be another round of currency depreciation in emerging markets led by China (allowing Yuan to depreciate against US dollar), say analysts.
Rupee: The rupee has been one of the worst-performing Asian currencies in the past year. Going ahead, analysts expect the rupee to stay under pressure in case the pace of outflows of foreign investors pick up pace amid deteriorating macros back home.
Health of the economy: Even though the GDP (gross domestic product) growth has picked up over the past one year to 8.2 per cent, the next one year could pose a challenge in case the fiscal situation worsens on account of a rise in oil prices. That apart, the government could dole out populist measures ahead of the general elections scheduled for May 2019, which in turn, could put pressure on the fiscal and current account. This, analysts say, may not go down well with the markets.