Detailed Market Overview January 2020

It has been a very interesting journey over the past 6 months as the economic growth has decreased but the markets have rallied and touched all time highs.

Read our Detailed Market Overview from September 2019 to see where we were 6 months ago and read on to figure out where we are today.

EQUITY MARKETS

Let’s take a look at the last calendar year for Equity Markets before we analyse where we are today and the road ahead

Equity Glance CY2019

Equities have had a particularly volatile year with correction in the 3rd Quarter of the CY and Rallying in the last.

The latest rally is really surprising as it does not co-relate with the economy. In fact, this divergence between the markets and the economy has existed since the last 3 years.

Smallcaps and Micaps have continued their underperformance relative to Largecaps for the second year in a row.

In fact, even in the large cap space, there are just 10 stocks that are almost entirely responsible for the equity rally.

However, the latest equity rally is finally broader in nature. We can see the market cap divergence is correcting which means that going forward the rallies should be broader based –

Following would be the main triggers for this year –

The outlook for equities continues to be positive albeit carefully (as there are still global and domestic economic concerns).

Lump Sum purchases should still be staggered via STPs and portfolios should have a diversified mix of market caps.

DEBT MARKETS

Let’s take a glance through the debt side of the story in CY2019

With our economy going through a low and various other credit events over the past 18 months, even debt markets have been uncharacteristically volatile.

Yields have continuously dropped and RBI has had multiple rate cuts (total 135bps) throughout last year. RBIs liquidity stance and forex intervention has kept the liquidity abundant in the system.

This has kept downward pressure on short term rates and thus there are low real returns for extremely short-term debt investments. However medium-term debt investments still remain positive.

Finally, the economy appears to be picking up with increased activity in the services and manufacturing sectors as per the latest Bloomberg Report (Read the full article here).