How was 2019 in snapshot
Before we get into 2020, let’s look back and see how the Indian markets performed in 2019 vis a vis the world markets. Indian indexes showed lots of volatility in the year but ended the year at a positive 13 to15% gains . While NIFTY rose by about 13.5%, Sensex rose by 15% with respect to 2018 closing level .
Global stock markets have posted their best year since the aftermath of the financial crisis a decade ago, as investors shrugged off trade tensions and warnings of slowing growth in major economies.The MSCI World Index, which tracks stocks across the developed world, jumped by 24% in 2019 – the strongest performance since 2009. A surge in US technology giants and a strong recovery in eurozone and Asian stocks drove the rally. While US S&P 500 index jumped by 28%, China CSI index jumped by 36%. So , the conclusion is that while India indexes perform moderately well , world markets including US, Eurozone and China performed better.
CY19 was “a year of dissonance” with the economy and equity performance reflecting a clear disunion. The GDP clearly witnessed a slowdown in growth while the Nifty was at the all time highs. Even within equities, polarization was clearly visible with select large caps ruling the roost but the broader market witnessing a dry spell. Broader markets didn’t do that well with Midcaps index loosing 3.5% and small cap felling by 7%. This was mainly due to domestic liquidity squeeze due to NBFC crisis , muted expectations of corporate earnings recovery, Crude oil spike , US-China trade woes etc. Interestingly, the year was also marked by key structural reforms in the form of corporate tax cut and IBC(Insolvency and Bankruptcy code) setting the tone for the future.
My forecast of the Indian markets in 2020 & next few decades(long term)
I am a long term investor who focuses on long term trends and projections of my favourite businesses/stocks and the economy/ market . I would not dare to venture into the short term precise Sensex forecast as markets are very unpredictable in short term. This year , Global markets might be volatile especially in the first half of the year due to factors like US -China trade war woes, Global economy slow down(US economy and Chinese economy slowing down) , Geopolitical tensions like US/ Iran etc. These global factors will definitely have an impact on Indian markets. Domestic factors like Fiscal deficit of FY20 exceeding the target of 3.5%, restart of private investment cycle and corporate earnings pickup in the second half of the year will have an impact on the market levels. Government spending on farming /rural sector, infrastructure spends(National Infrastructure Pipeline of $1 Trillion- roads, railways, ports, power, telecom, irrigation etc) and Govt/PSU consumption spending will also play a significant role in improving the economy as well as corporate earnings . My hunch is that 2020 would see lots of volatility and subdued market performance in first half of the year. The market will rise in tandem with the new government policy/ budget announcements and corporate earnings growth as the PE multiples now are already at a slight premium with the historical averages(18 times forward earnings -FY21 Earnings – when compared to historical forward earnings multiple of 15 times). Earnings growth expectations are in high teens(18-20%) and hence the market which is at slightly more than fair value , might grow in the range of 8-10% which would mean Nifty should be in the range of 13100 by the end of 2020. The equivalent sensex target would be about 44500.
Equity investors will enter the new year with lots of worries on macro challenges , concerns on earnings growth, crude oil spikes etc in their minds. They will keep a close watch on global cues as well as domestic factors like Budget/ policy announcements, potential rise in crude oil prices, inflation trends , burgeoning fiscal deficit concerns etc. Any rise in fiscal deficit, inflation and crude prices might prompt RBI to re-start hiking the rates again. While these challenges will be in the minds of investors , there are couple of green shoots too which the investors should keep in mind.
The government’s recent announcement to curtail corporate tax rate for new investment along with benign inflation and lower interest rate scenario could pave the way for a recovery in private investment in FY21E. With a marked improvement in land acquisition(3 X in 2019), we anticipate a moderate recovery in H2FY20E. The improvement in investment cycle could get visible in FY21E with the government efforts to improve GST collection and consequent better capital outlay at both central and state level
I would like to repeat that India economy and the market have already started a strong and long term structural bull market in 2014(I had predicted the same in my multiple blogs ). There could be small and temporary corrections or fall in the market but the long term trends should be a very positive one for next 15 to 20 years As far as my long term Sensex prediction is concerned, I am predicting Indian market(Sensex) doubling up every 5 years for next 15-20 years which means Sensex multiplying 16 times in 20 years (reaching about 6,60,000 by end of 2040). This means that you can multiply your wealth 16 times in next 20 years just by investing in Sensex EFT or index funds. If you do a bit of quality stock picking, you can beat this rate and multiply your wealth by 20-30 times by 2040 . This kind of long term wealth creation opportunities can happen only in rare asset classes (like Indian blue chip equities) in the world. The economic and investment cycles have bottomed out and will show a sustained long term positive trend from now. The macro variables have come under control with CPI inflation and Fiscal deficits under control at about 3.5%, stable government , stable foreign exchange reserves(>400 Billion$).
My 2020 Model Stock portfolio
In summary , the macroeconomic , domestic and global factors are uncertain and cloudy which could be creating further volatility . Hence 2020 is going to be a year of stock picker and not a general market condition where you can bet on Index and certain sectors .Hence the need to have a disciplined bottoms-up approach to research and pick the right business –quality businesses run by quality management with strong balance sheets, earning decent return of capital/ equity(ROE) and good long term growth outlook, available at attractive prices/valuation( providing decent margin of safety). As per my tradition in last few years, I am publishing my top 15-18 stock picks for 2020(model portfolio 2020) in which I am investing now .
My 2020 Portfolio of Top 25 business/ stock picks(stock related data as per table below)
Pl click on the picture/table to enlarge it .
What are the sectors which could yield some great bottoms-up opportunities? Some of the sectors I like are consumption sectors-Consumer staples/FMCG , consumer durables (with businesses like Titan , HUL , Nestle, Colgate, Jubilant Food, ITC , Bata India and Blue star) because of consumption and rural sectors picking up buoyed by Government actions, good monsoons etc , consumer based Strong Private banks /NBFCs (HDFC bank , Kotak Mahindra bank , Bajaj Finance, Bajaj Fin serv , HDFC) as they are good value plays after a temporary bad news/NPA and liquidity crisis in Banking and NBFC sector , Infrastructure and capital good sectors(L&T, Bharat Electronics and Blue star )since the government has launched big ticket infra projects like 1 Trillion NIP(National Infrastructure Pipeline) projects and Bharat-mala projects., There are some defensive sectors like IT and pharma(HCL Technology, TCS, Biocon , Divi Lab)which had corrected well due to some temporary headwinds and are now picking up now due to Rupee devaluation . Apart from these traditional stocks , there are some new emerging sectors like Insurance , AMC and retail which are showing a lot of potential for next decade . Some of the hot stocks from these sectors are ICICI Prudential Life, SBI life Insurance and ICICI Lombard General Insurance , HDFC AMC and Avenue Supermart(DMART stores). These are the25 stocks I have picked up carefully for focused and long term investing in 2020. Out of these 25 stocks, The selection bias is deliberately oriented towards large caps except 5 midcap stocks/ businesses(Bata India, Blue star and Mannapuram Finance, Jubilant Food and Bharat electronics ) or 25% of stocks to reduce the risks in a volatile and uncertain year.
All these businesses are quality businesses with durable moats or competitive advantage with excellent capital efficiency(Consistently high ROE/ ROCs), strong balance sheet( reasonable Debt/equity, Debt/Profit ratios ), competent managements and stable growth records/outlook( Consistent Sales and Profit growth rates) and yet available at under-valued/fair prices ( reasonable PEG ratio and PE ROE ratios) , providing a great “margin of safety” for long term investors. This market is in a long term structural bull rally and therefore any fall or correction would be temporary and should be treated as a good opportunity to invest in these quality stocks or businesses for long term with a long term returns of 15-20 % per year (on an average).
Wish you a very happy New decade and Happy investing,