Markets in January 2019 and Predictions for February

Monthly snapshot at a Glance

Source: BSE, NSE, Oanda, Google Finance. As of January 31, 2019; *For Sensex, #India Volatility Index, @For 10 gms, ^ Consumer Price Inflation for previous month, 1M change indicates percentage point change in inflation rate. S&P BSE IPO tracks the current primary market conditions in the Indian capital market and measure the growth in investor’s wealth within a period of two years after listing of a company.

Highlights during the month

Indian equity indices started 2019 on a positive note on Tuesday – the 1st of Jan, led by gains in financial stocks and upbeat cues from the US. A decline in global equities was witnessed after a revenue warning from tech-giant Apple fueled fears of slowing global demand. The market remained primarily range bound as the month progressed.

After mid-month, the market was mainly affected by renewed jitters over global growth. Stock-specific selling was witnessed due to muted quarterly earnings that dented investors’ sentiments. Selling pressure was witnessed in automobile and power counters during the third week of the month. However, strong earnings from index heavyweights helped support the overall market. Also, buying interest in oil & gas and healthcare firms chipped off some losses.

In the last week of the month, the market managed to recoup previous week’s losses as sentiments were boosted by an expected positive move to be announced in the interim budget. Also, the short covering on expiry of January series futures and options (F&O) contracts supported the market. Some weekly gains, though, were trimmed on uncertainties surrounding the US-China trade tiff and a pullback in shares of metal and oil & gas firms. Some of the other developments are highlighted as under:

• Finance Minister Arun Jaitley says the government was not seeking Reserve Bank surplus to meet fiscal deficit but to utilize them for accelerating poverty alleviation programmes and recapitalizing the state-owned banks
• SEBI issued a circular on the segregated portfolio; fund houses can use it if debt assets are downgraded to below investment grade
• India’s Nikkei manufacturing Purchasing Managers’ Index (PMI) fell to 53.2 in December, below November’s 54.0 reading
• The International Monetary Fund (IMF) said India is projected to grow 7.5% in 2019 and 7.7% in 2020, attributing the pick-up to lower oil prices and a slower pace of monetary tightening. 

Things to watch out for, in February 2019 and its impact

• The earnings season did not start quite well as anticipated. Some stock specific sell out has been seen where the earnings growth remained muted. Thus, the season is likely to show mixed results.
• Crude oil price and rupee trajectory concerning US Dollar remain a key monitorable. The duo has been showing signs of improvement – considered a positive development for the economy.
• The global market is surrounded by negative sentiments with expected slowdown in the US and China. Any development around the trade settlement could ease the global tension and benefit the Indian market.
• The political environment is dampening with the blame game. With the elections due in less than four months, the market has become turbulent. For a short-term period of three months, one should avoid being aggressive and timing the market. One should wait for stabilization particularly after election commission announces dates.
• Any sharp decline form current level (>10%) would create buying opportunity in the long-term horizon as long-term risk-adjusted returns tend to be better.