Outlook 2020: 10 things that are likely to shape the markets this year

2) The Q1 and Q2 FY21 earnings season: We first have to deal with Q3 results and then Q4. So why then am I saying the Q2 earnings season will be vital? That’s because the market normally moves around 6-9 months ahead of an actual recovery in the economy and if indeed the market bottomed out in September, the recovery should reflect in the Q3 numbers. Markets will be charitable with Q3 and Q4 of FY20 but not with the Q1 and especially Q2 of FY21.

3) Will L&T finally stand out? This is one stock that has really tested the patience of investors. It looked like it was finally breaking out earlier this year but the past four months have disappointed. With the big hope of a capex recovery in 2020 and so much focus on infrastructure, this really has to be L&T’s year. Or at least that’s the hope. And this can also be extended to other economy-facing stocks such as cement, infrastructure and capital goods.

4) Will the market broaden? Now, this where I personally feel the market’s polarisation isn’t necessarily a market cap one – it’s essentially a leadership one. Why? Because there is no dearth of outperforming midcaps as well last year. And no shortage of underperforming large caps too. In the same space, Siemens was up 45 percent while Cummins was down 34 percent. Tata Global rose 40 percent while Godrej Consumer fell 15 percent. Bharti Airtel shot up 55 percent and Voda Idea declined 70 percent. This is a market in which big became bigger. But can that change with the turn of the year? My sense is it can. However, at least for the first half of the year, the market may still remain narrow.

5) What will PSU Banks do in FY21? SBI boss Rajnish Kumar said the next year will be a year of recoveries. The market has endured a painful period of NPA recognition (most of which was a byproduct of the indiscriminate lending of 2009-13). But the clean-up now looks done. That’s a big hope. What the market definitely doesn’t want is another episode like IL&FS or Nirav Modi or DHFL.

6) Will YES Bank survive? This is an almost $1.5 -billion question (the market cap of India’s fifth-largest private lender). Actually, it’s more. The street is getting increasingly nervous about the ability of YES bank to raise capital because if it doesn’t, there is a good chance of it going down under. Now, the problem is that a bank like Yes Bank cannot fail without collateral damage. In case it fails (and that’s a big if), a large and healthy bank will have to absorb it. That will present a fresh worry since the acquiring bank most likely will be among the outperforming lot.

7) What happens to Vodafone Idea and its over 1 lakh crore debt? Towards the end of the year, billionaire Kumar Mangalam Birla told CNBC-TV18 he will have to shut Vodafone Idea if there is no support from the government. Now, a lot of people believe Birla’s statement is nothing short of a blackmail. Businesses do well and businesses fail. And Birla runs some of the most successful companies like Ultratech and ergo, he knows it better than most. However, from the market’s point of view, that’s a risk. The finance minister said that the government wants all the there telecom companies to survive. That offers big hope. But if Vodafone Idea were to go the Reliance Communications way, it could pose a big worry.

8)  Trump on Twitter: Make no mistake — US president Donald Trump will get more aggressive than ever. He is eyeing a 2020 re-election and as of now, it doesn’t look like there is anyone to stop him. But one thing is certain. The twitter feed of Trump will keep giving both bulls and bears sleepless nights. Especially if you are having any positions in metal stocks.

9) Will the Indian mutual fund investor keep the faith in Indian equities? The defining feature of post demonetisation era has been the channelling of money into the banking system. Much of this money has flown into the stock markets via the mutual fund route. And after a great 2017, investors have endured two painful years. The big hope is that this hasn’t damaged the equity cult and mutual fund inflows should continue.

10) Will automobile sales revive? I firmly believe this is the most important sector of the economy. It employs millions of people, it impacts everyone in the value chain and is a barometer of the economy. There are some signs of green shoots but they need to turn into real growth numbers in 2020.

Finally, a word on how the Index is placed. It has had a big run but look, the market has actually done nothing if you were to extend the time period to two years. Compared with many markets around the globe, we have actually underperformed.

This is a market in which at the index level not many people have participated. Hence, it may just keep surprising everybody on the upside and keep puzzling people as to why the market is doing so well despite the economy not backing it.

On this topic, I have just one thing to add. The market move could mean only two things:

1) The market is pencilling in a sharp recovery in second half of 2020.

2) The market is horribly wrong.

Now, if it’s the former, then you should be happy and even if it’s the latter, remember the famous saying: “Market can remain irrational longer than you can remain solvent”.

What’s the guarantee this move ends at 13,500 or 15,000 or 18,000? There is no point in fighting the trend