Four key factors that may impact the Indian equity market in 2019

The juggernaut of the Indian equity market continued in 2018 despite challenges on multiple fronts. Rising crude oil prices, depreciation of rupee against the dollar, liquidity crisis in non-banking financial companies (NBFCs) and the trade war between the US and China are some of the major events whose impact was felt globally.

However, despite all the hurdles, Indian indices outperformed their global counterparts. The BSE Sensex rose by nearly 17 percent, Nifty50 increased by 15 percent during the financial year 2019.

With a stable government at the Centre, there’s a renewed sense of optimism. As we move ahead in 2019, let’s look at four key factors that are likely to impact the country’s equity markets this year.

1. Reduction in repo rate by the Reserve Bank of India (RBI):

The Reserve Bank of India reduced repo rate by 25 bps to 5.75 percent. One of the primary reasons attributed to this slow growth was the weaker domestic consumption.

A reduction in repo rate would bring down interest rates on different kinds of loans, thereby boosting investors’ confidence and bolstering consumption.

2. Crude oil price movement:

Markets across the globe reacted to a sharp rise in global crude oil prices in 2018 amid tensions between Saudi Arabia and Iran, limited production by Russia & OPEC and hiking of rates by the US Federal Reserve.

With the US announcing more tariff imports on Mexico, one the major suppliers of crude oil, the Brent Crude, that serves as the benchmark price of oil purchases across the globe, tumbled, resulting in lowering of oil prices.

Though this augurs well for India, as it lowers since it imports a majority of its oil requirements, it will be interesting to see how this price moves in the coming days.

Markets will react positively if prices come down as it will benefit the entire world economy. However, the scenario can radically change if Washington goes ahead and imposes tougher sanctions on Iran, one of the major oil producing nations in the world.

In this case, it will lead to instability of the region, affecting equity markets across the globe, including India.

3. Performance of the debt market:

The Indian debt market is going through a tough phase post the IL&FS crisis. The yield on the 10-year government bond slid to below 7 percent for the first time since November 2017.

Also, faltering of payments on fixed maturity plans (FMPs) by some asset management companies (AMCs) have further pushed Indian debt and bond market to its worse crisis since the Lehman meltdown.

The ongoing crisis on the debt market is likely to have a contagion effect on the performance of the equity markets with investors either pulling out of their existing investments or avoiding the market altogether.

Equities are inherently volatile, while debt is seen as a relatively safer bet. The current crisis has already taken a toll on investors’ confidence and for retail and risk-averse investors who shun equities because of their ingrained volatility; it will only push them further away from investing into these asset class that has the potential to deliver inflation-adjusted returns in the long run.

4. Budget 2019:

Prior to general elections 2019, the interim Budget was presented that had announced several policies favouring the common man and the farmers, a vital cog in the wheel of the country’s economy.

Some of the notable announcements made were complete tax exemption on taxable income up to Rs 5 lakhs along with policies such as the Pradhan Mantri Kisan Samman Yojana (PMKSY) which promised payment of Rs 6,000 per year to farmers holding up to 2 hectares of land.

Now that the new government is already elected and the full Budget is likely to be presented in July, the equity markets will be looking forward to new announcements made by the government related to the economy and infrastructure growth among others.

With the domestic economy facing its worst slowdown in five years, the announcements made to revive it on the path of growth coupled with addressing challenges faced by the financial sector, private investment and exports revival, will play a crucial role for the equity markets this year.

The next few months are going to be quite interesting for the equity markets. The economic reforms undertaken by the new government coupled with fiscal consolidation measures would decide which way the market swings in the coming days.

The author is Head, Personal Wealth Advisory, Edelweiss

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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