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Stock market investors take note! These 5 events will decide how Sensex, Nifty perform in 2019

The S&P BSE Sensex and Nifty50 could just wrap up the year with 4 per cent and 1 per cent gains, respectively.

Aprajita Sharma December 26, 2018 | Updated 18:52 IST
These 5 events will decide how Sensex, Nifty perform in 2019

Stock market investors will remember year 2018 as another year of wait for earnings revival as domestic triggers including introduction of long-term capital gains (LTCG) tax, fraud in Punjab National Bank (PNB), NBFC crisis, liquidity crunch and the government-RBI tussle, coupled with global factors such as Sino-US trade war, fluctuations in crude oil prices and US Federal Reserve's rate hike cycle, kept investors on tenterhooks. The S&P BSE Sensex and Nifty50 could just wrap up the year with 4 per cent and 1 per cent gains, respectively. This is against post-tax returns of at least 6 per cent offered by fixed deposits (FDs) during the year.

Also Read: Sensex ends 179 points higher, Nifty above 10,700; bank and capital goods stocks lend support

As curtains draws to year 2018, and year 2019 makes it way, let's take a look at five events that will set the tone for the market next year:

  • General Election 2019
The outcome of General Election 2019 is inarguably the most awaited event of 2019 for market investors. The BJP's defeat in the recently held state assembly elections in Madhya Pradesh, Rajasthan, and Chhattisgarh has made it even more interesting as BJP ruled in all three states (for 15 years in Madhya Pradesh and Chhattisgarh), and yet lost power to Congress. Although the market has priced in BJP's victory in Lok Sabha elections, UBS Securities, in a note, said the focus will shift towards the upcoming General Election in a more granular way, including evaluating various outcome possibilities.

  • Oil price trajectory

From the peak of $80 per barrel hit in early October, oil prices are now hovering at around $50 per barrel as OPEC and allies led by Russia agreed this month to cut oil production by 1.2 million barrels per day and United States granted waiver from Iran sanctions to eight countries including India. However, the upward pressure on the prices still exists as we enter 2019.

"We see a possibility of further restraint on Iran oil exports by the US government once the 180-day waiver period expires in early-May 2019. Iran maybe exporting about 1 mn b/d currently and any reduction may tighten the oil markets, especially around seasonally strong demand during summers. OPEC+ may consider restoring production partly or fully to address the situation," points out Kotak Institutional Equities in a research note. 
  • Corporate earnings
Another calendar year is going by with scant revival in corporate earnings.  While the topline growth was in line with street expectations, profit growth continued to disappoint. Kotak Institutional Equities sees earnings revival as the most important driver of the Indian equity market for CY2019 despite several global and domestic events in H1CY19, which may create volatility.

"We model net profits of the Nifty-50 Index to grow 27 per cent driven by (1) robust growth in net profits of certain banks (both private and PSUs) on the back of lower loan-loss provisions, (2) strong growth in net profits of pharmaceutical companies driven by the launch of new US generics and specialty products and (3) moderate growth across domestic consumption sectors led by moderate GDP growth.

  • Macro-economy
Street will keep a close eye on FY19 fiscal slippage, GDP growth and interest rate trajectory. With the general election not so far away, the government, it seems, is focusing more on populist measures than prudent ones. After farm loan waivers by Madhya Pradesh, Chhattisgarh and Assam last week, the central government announced infusing liquidity in PSU banks and cut GST rate on 23 items such as air conditioners, mobile phones, dishwashers, television sets. That said analysts find it 'virtually impossible' for the government to meet its FY19 fiscal deficit target of 3.3 per cent of GDP.

Meanwhile, GDP growth is expected to slow down in H1FY19 after September quarter of FY19 disappointed with a broad-based slowdown across consumption, net exports and manufacturing on the supply side.

Going ahead, experts believe inflation will potentially undershoot RBI's H2FY19 average forecast of 3 per cent and will certainly remain below the 4 per cent inflation target. This raises the probability of a rate cut in the February meeting itself with experts expecting up to 50 bps of rate cut in 1HCY19.

  • Global cues
India's $2.6 trillion economy, the fifth-largest in the world, is no longer decoupled from the rest of the world. With the global growth coming off a strong phase, India's growth looks challenged, too, in view of recent concerns around trade wars, Brexit, Eurozone worries and a possible growth slowdown in United States and China. Besides, US Federal Reserve's interest rate stance will also remain in focus in 2019. Last week, the US Fed raised interest rates, as had been widely expected, but forecast further increases in 2019 -- albeit fewer than what was announced in September -- in its 'not-so-dovish' policy review.

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