The volatile stock-markets in India were impacted by a number of factors both global and domestic like the LS-elections, the international trade war, the NBFC crisis, falling earnings, the MPC meet, weakened auto-sales and such.
Nifty and Sensex indices saw a high on the day of election results and continued moving up to 12,103.05 and about 40,312 respectively. The 1-year target-price of these indices was hiked by the brokerage firms in spite of the capping of the upper limit in the current short term. The expected Nifty-EPS is anticipated to grow to 604 Rs or 26%. Both indices rallied by 9% in the first six months of benchmarking. Nifty Media lost 19% while its realty arm gained 18% making Nifty Media the top loser for the half-year.
Factor’s that impacted PE markets:
The top five events impacting the performance of PE markets were
Victory for NDA:
The benchmarking indices rose after the general election results and even on the exit-polls forecasts. The mandate was overwhelmingly for the BJP when Nifty rose by 3.7%. Investors were pleased the reforms introduced would continue when the uncertainty of poll results saw an end to it with the political party BJP garnering 303 seats out of the total 543. The full budget expected on 5th July offered a window to the indices that stabilized at 10% in the first half of 2019. According to SAMCO Securities’ research head Umesh Mehta, Nifty is trading at a highly-valued top-end with 29xPE and onwards confirming that after the 10% rally the Nifty will hold ground till the budget presentation.
Cut in RBI-policy rates:
The 6th June review-meet on policies by the RBI cut the repo-rates downwards by 25 bps. The expected cut was in line with RBI’s stance to be accommodative rather than neutral, amid growth-concerns. According to Fitch Ratings, the interest rates will see another 25 bps decline by RBI attributed to inflation and growth momentum being well within the targeted limits. Most analysts agreed with this assessment.
Kotak Mahindra AMC’s Head- Debts and Products Lakshmi Iyer, who is the CIO stated the cuts in repo-rate was expected since RBIs changed stance removed doubts regarding the rate-of-action and its direction. The package is silent about any concessions to NBFC’s and focuses on studying the liquidity problems by appointing a working-group for it.
The tanking of Jet Airways:
The first half-year of 2019 saw shares of the cash-strapped aviation giant Jet Airways shares tank by almost 80%. The company was hauled to the NCLT in Mumbai and forced to shut down operations by lenders and the 20th June insolvency petition filed by SBI the largest creditor. The SBI led bank consortium had earlier declined emergency-funds of 400 Cr in Rs for operational expenses. A total of 15000 employees were stranded without salaries from January and approached the police for recovery action. Jet Airways may never be up and running again.
The trade war between US and China:
Donald Trump the US President levied stiff tariffs on trade partners across the globe to strengthen the economy and reduce trade-deficits of the US economy. China was in the protesting forefront and in India the stock markets were affected and under pressure amid the rising tensions and a possibility of a tariff war between China and the US. The 26th June meeting could also see a deal between Xi Jinping and Trump that could ease the ongoing trade war.
The crisis in the NBFC sector:
The alarming defaults in 2018 by IL&FS saw the NBFC crisis deepen and the markets respond to the stimuli. Most NBFC found the banks were wary of lending and the NBFC’s found it hard to raise capital. The lending rates increased the funds-costs by 150 basis-points! RBI tried to ease their position by buying 300,000 Cr Rs governmental papers in the debt markets in 2018-2019 as NBFC’s do not use it as a collateral measure. Yet, the costs are very high on NBFC borrowings.
The very sustainability and liquidity of NBFCs came under scrutiny with DHFL defaulting in paying interest on its debentures held by investors. CRISIL and ICRA quickly downgraded the DHFL ratings. The commercial papers of DHFL saw CRISIL downgrading the credit rating and simultaneously Reliance Commercial and Home Finance owned by the group of Anil Ambani also got CARE down-graded.
HDFC Life Insurance’s CIO Prasun Gajri states that the investor's risk aversion for debt capital markets could be temporary. Well, we hope so too!
In conclusion, the PE market trends in the round-up for the half-year of 2019 were impacted by the events both regulatory and political. Learn about the PE trends at Imarticus Learning and make your career in data analytics.