I believe what worked in past two years won't repeat in the coming year. Investors need to adapt if they want to scout for fundamentally good stocks that possess an alpha character.
What do I mean by that?
The stock market moves where the broad consensus goes to. In the current market phase, investors are afraid to invest in quality large-cap stocks. This was certainly not the case two years ago. In fact, quality large caps were basically centres of refuge during 2018-19.
Quality stocks hold a special place in every portfolio. But I would recommend that alpha chasers look at small and mid caps.
Gold prices
I see much more money going into stocks like Manappuram Finance Ltd and Muthoot Finance Ltd due to the tailwinds with respect to higher gold prices.
I believe that gold is going to go up due to geopolitical concerns and protectionist policies, which will contribute to global instability. Slower growth, the trade war and rate cuts have spurred investor demand for gold. Central banks have been major buyers too, especially in emerging markets. This is already being done by China. Russia too has added substantial quantities of bullion.
Steel prices
As was reported a few days ago, steel prices are set to go up for the third consecutive month in January following a revival in domestic demand and a firm price trend globally.
With steel prices going up, scrips like NMDC and GPIL should do well for a while. I'm sure there are much more opportunities in it which will get revealed in times to come.
Geordie Job Pottas is a full-time equity investor. He is not a SEBI registered analyst or financial adviser. The stocks mentioned above are not recommendations, but part of his diversified portfolio. You can follow him on Twitter.
The Indian economy has been witnessing a major reset in terms of technological evolution, regulatory framework, trade structure, development model and federal structure. Businesses and markets may continue to face material disruption for next few years, as the new paradigm emerges and demand and supply dynamics find a new equilibrium.
In the near term, asset prices may continue to fluctuate as investors and consumers try to assess the fair value. But the opportunity shall be significantly larger in comparison to earlier reset periods.
- Macro weakness to persist.
- GDP/GVA growth to stay below 6%, assuming no major fiscal stimulus.
- 3/4th of the population may face stagflation – low to negative wage growth and rising cost of living
- Market volatility to rise sharply due to erratic flows and corporate performance. Overall, equities will remain under pressure. Market breadth may remain poor.
- Real interest rates will ease marginally.
- Liquidity conditions will remain comfortable.
- Private investment and consumption should remain subdued. Rising unemployment and poor wage growth to limit consumption growth. Large output gap to restrict private investment. Public sector investment to remain low. Both public and private capex to remain poor, though marginal improvements may be seen due to low base. Revenue collections to remain below par.
- Global commodities will show a mixed trend. Precious metals may do better while industrial metals and energy prices shall remain under pressure.
- The rupee will weaken and may average in Rs 73-74/USD for the year.
- The current earnings forecast is way too optimistic, there is the possibility of sharp cuts. The drought may extend to FY21. Expect significant earnings downgrade and de-rating of PE multiple. Corporate earnings to grow in single digits.
- The liquidity fueled global economic expansion looks tired. The deceleration that started in 2018, may not reverse in 2020. The deceleration in the Indian economy may get arrested, but a broad based sustainable recovery is highly unlikely. The recovery may be shallow and limited to select pockets.
- Overall equity returns to remain poor while the market will witness higher volatility.
These are the views of Adroit Financial Services Pvt. Ltd. You can follow portfolio manager Amit Kumar Gupta on Twitter.
