Road will be bumpy for investors in 2019

'The first half of 2019 could be volatile.'
'In the second half, volatility inducing events should be largely behind us.'
Samie Modak reports.

After a smooth sail in 2017, equity market investors have witnessed a bumpy ride this year.

Sample this -- there have been six trading sessions this year when the benchmark Nifty gained or fell more than 2%, up from zero last year.

Similarly, the number of sessions when the index has moved by more than 1.5% has quadrupled to 17 this year.

Not just India, but global markets have also been on a roller-coaster ride amid the rise in US dollar and bond yield due to monetary tightening by the US Federal Reserve, and fears of economic slowdown on account of flaring up of global trade tensions.

The Dow Jones index of the US has recorded an unprecedented 19 trading sessions of 2-per-cent moves.

In 2017, there were zero such sessions thanks to the benign stance adopted by global central banks.

"Volatility has been a big feature for the market this year," says Ravi Muthukrishnan, head of institutional research at Elara Securities.

"The Indian market is highly correlated to the US, which has witnessed wild swings due to Fed rate hikes, trade tensions and growth concerns," he adds.

While global cues have largely dictated the direction for the Indian stocks, investors also have had to grapple with a fair share of domestic issues.

The benchmark indices went through a tumultuous phase in September and October on account of deterioration of macroeconomic fundamentals, following a sharp slide in the rupee and spike in global oil prices.

Bulk of the trading sessions when the market saw moves of 2% were in October, when a mix of global and domestic issues had spooked equity investors.

Increase in volatility is seen hurting the appetite of investors for equities.

"One of the key reasons why retail investors kept pouring into equity mutual funds last year was the secular up-move in markets. We have witnessed moderation in flows as the increase in volatility in the markets this year made some investors wary," said a top official at a fund house.

The road will continue to be bumpy for investors in 2019, feel experts.

"If not anything else, the perception of what will be the outcome of the elections will keep the markets volatile," says Muthukrishnan.

The general elections are scheduled for May 2019.

Currently, the consensus among market players is that the ruling BJP will retain power, albeit with a less number of seats compared to 2014.

"The first half of 2019 could be volatile, marked by the persistence of the last leg of the dollar strength aided by the continuation of Fed rate hikes. In the second half, volatility inducing events should be largely behind us," said Manishi Raychaudhuri, Asia ex-Japan equity strategy at BNP Paribas Securities.

"The best case for the equity market shall be a BJP majority on its own and the worst case shall be a combination of Opposition parties coming to power," he added.