General elections, biggest overhang for equities in 2019: report


However, volatility due to political uncertainty can be an opportunity for investors to put money into equities for long term gains

For equity markets, the general elections will be the biggest overhang in 2019 though most market participants expect the year to be a lot better than the one just gone by that saw the benchmarks clock low single-digit gains with extreme volatility.

In its India Outlook 2019 report released recently, Standard Chartered has stated that while it remained positive on Indian equity markets in 2019, it was more cautious compared with 2018.

The foreign bank expects Indian equities to deliver positive returns in 2019 but with “significant volatility” as the risk premiums could rise further to factor in political uncertainty as the general elections near in mid-2019.

It further states that while macro environment is still supportive for equities with robust high double-digit earnings growth expected, factors like rising margin pressures, stretched valuations relative to bonds, moderating flows and tighter liquidity are the potential risk factors.

The year 2018 saw the benchmark Sensex gain about 5.91% or a little over 2,000 points. This was after it touched a new all-time high of 38,989.65 on August 29.

Incidentally, the gains of 2018 are much lower than the nearly 28% gain or 7,430 points that the benchmark registered in 2017. Meanwhile, the broader Nifty was up a marginal 331.85 points or 3.15% in 2018.

Coalition government

According to ICICI Securities, one of the key risks for the market in 2019 would be the possibility of a weak and unstable coalition government, which could slow down economic growth though the brokerage believes that domestic macro stability will be a key catalyst for market performance in the year.

Global financial major Credit Suisse said the elections in April-May 2019 were likely to keep noise levels high even though in the last six occurrences, going back to 1996, these elections had no visible impact on market direction.

A section of market participants, however, view the volatility on account of the political uncertainty as an opportunity for investors to put money in equities for long term gains.

Vikas Jain, senior research analyst, Reliance Securities, believes that while the markets would be volatile in the first half of 2019 due to global slowdown and general elections , investors could use the volatility to build the portfolio over the next two quarters to generate higher double digit returns over the next few years.

“Broader market could do well in the second half of CY19 on expectations of earnings pick-up among Indian corporates post fourth quarter of FY19 along with resumption of FII flows into India around and post general election time,” said Dhiraj Relli, MD & CEO, HDFC Securities, while adding that the Nifty has the potential to touch 12,400 during CY 2019.

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Printable version | Jan 29, 2020 11:13:41 PM |

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