There are many predictions out there suggesting that equity market will do well in 2020.

I am in other camp and believe that Year 2020 will be tough year for the investors on the same line that we experienced in last two years. Year will be more of stock pickers rather than broad based rally.

So why I feel 2020 would be the year for stock pickers and we may not see broad based rally.

The stock price movements are a function of two main factors-corporate earnings and liquidity. If there is growth in corporate earnings, the EPS expands, and if there is good liquidity, the PE expands. Right now, only one cylinder-liquidity-is firing. The earnings growth is still muted.

Earnings Growth

This one factor has been frustrating investors over the last five years. At the beginning of every year, the earnings growth expectations are in double digits, but as the year progresses, the market realises that it has overestimated the growth. Over the last four years, India Inc.’s PAT has grown at an anaemic rate of 1.6 per cent-much lower than the inflation rate. So, the inflation-adjusted India Inc.’s earnings is lower than what it was in 2015. Going by the current poor economic data points, we may have one more year of depressing earnings growth. If at all there is earnings growth, it would be more of a back-ended one.

Liquidity

India has the benefit of easy liquidity from around the world. Due to this, FPIs in 2019 pumped in much higher money than they cumulatively invested in the last four years. At the same time, despite volatile market conditions, MF investors acted sensibly and did not stop their SIP commitments. India would continue to enjoy the benefit of easy liquidity from around the world. I also sense that lot of funds will flow from the developed markets to the emerging markets in 2020. India will get its fair share. MSCI increasing India’s weight due to removal of FPI limits would be another favourable factor.

But PE expansion has its limitation. Without earnings growth, PE expansion can’t sustain. Indian market today enjoys higher PE than what it was commanding in 2007. That means valuations are not cheap. In terms of market cap to GDP too we are close to 10 years average making upside cap.

With Geo-political situation continue to be fluid (the recent one is US and Iran) makes me feel that every rise in the market would be followed by sharp corrections (as we experienced on 6th Jan).

This is where investors would need hand holding and need proper guidance. I am happy to inform you that MarketsMojo in new year started new feature where each stock has score on the dashboard. This is one of the best ways we can guide our investors what one needs to be done with the stock that you intend to buy or stocks that you hold in the portfolio. I am appending score of TCS for your reference.

Don’t risk your hard-earned money by taking random investment calls. MarketsMojo is there to guide you. For your benefits we have unique offer where by subscribing for one year one gets two additional year subscription free. You pay for one year and enjoy subscription for three years. Now you would say – Aur kya chahiye!

Happy Investing!
Sunil Damania
Chief Investment Officer