Which Way Will The Market Swing? 2020

A narrow rally in stocks and debt defaults saw investors get a rather raw deal in 2019. We ask leading fund managers what’s in store the coming year

- Parvatha Vardhini C

EQUITY

Pockets of opportunity

Large-cap indices and stocks have moved up sharply over the past year even as mid- and small-caps have been struggling. Will the good run for large caps continue in 2020?

While the large-cap Nifty index is up 12 per cent y-o-y, the mid-cap index is still down 4 per cent y-o-y and the small-cap index is down 10 per cent y-o-y. Investors have gravitated towards large-caps as they provide safety and better earnings visibility and are also gaining market share.

We expect the economy to recover gradually going forward, and large-caps should continue to be steady performers. However, mid- and small-caps, which typically have a higher exposure to the domestic economy, could outpace large-caps once we start seeing signs of a sustained economic recovery. CY20 should likely be a year of market consolidation and transition — from a narrow rally to broader market participation.

How are valuations in different segments of the market currently?

Due to lack of economic growth, quality has outperformed and a few expensive large-cap stocks have become more expensive. This is evident from the fact that since January 2018, only the top 10 market-cap companies in the large-cap Nifty 50 index have run up, whereas the rest 40 companies by market cap still have a lot of room to catch up. The large-cap Nifty 50 index is trading at a one-year forward P/E of 20x, which is at around 20 per cent premium to its long-term average.