2018 has been a rollercoaster year. Global trade-war, rupee volatility, crude oil prices, central bank policies, and liquidity concerns kept markets on the edge in 2018. Sensex witnessed a 5.9% growth throughout the year. On the sectoral front, all most all, except Banking, IT and FMCG have ended in losses. With 2017 being a wonderful year for mid and small-cap indices, 2018 has been dull.
Key events of 2018
Banking Fraud: PNB – Nirav Modi
India witnessed one of the biggest banking frauds, in February 2018. The diamond merchant Nirav Modi used Letter of Undertaking to mop nearly USD 2 billion from Punjab National Bank.
Missile Test: North Korea
The first quarter of 2018 underwent pressure from North Korea’s supposed missile test. This led to uncertainty among investors.
Debt Crisis: IL&FS
IL&FS defaulted on payments to lenders triggering panic in the markets. The company defaulted in payment obligations of bank loans (including interest), term and short-term deposits and failed to meet the commercial paper redemption obligations due on September 14. In a single day, DHFL fell as much as 55% as a mutual fund sold its commercial papers in a fire sale. A credit rating agencies downgraded the investment grade bond to junk upon default which led to the unfolding of the crisis.
Rupee: New Low
In 2018, amongst the Asian currencies, the Indian rupee performance wasn’t very promising. During the year, it touched a fresh low at 74.4825 against US dollar.
Crude Oil: High Prices
As India imports oil, any upward movement in the prices is a cause of concern for the national economy. In October, Brent crude oil was at $86.29 per barrel. This had an impact on the current account deficit.
Trade War: Between the USA and China
The trade war between the United States and China has indirectly helped India boost its exports. Indian share market dropped due to the cautious approach of the investors, amid concerns over the global trade war. The United States imposed duties on steel and aluminum. As a counter-measure, India has proposed imposing duties on 30 different types of goods.
Elections: Surprising State Results
There has been a lot of buzz around the 2019 elections. With BJP led NDA failed to come into power in the key states like Karnataka, Telangana, Rajasthan, Madhya Pradesh, Chhattisgarh, Meghalaya, and Mizoram created a lot of pressure on the government. As a result, new reforms have been put in places, such as tax benefits for the salaried class, direct income for farmers, pensions for unorganized sector workers and other reforms.
Amidst a lot of up, downs and surprises, the markets have faired and ended on a positive note.
What can we expect from 2019?
Due to a favorable macro environment, the economy is expected to continue to build up momentum primarily on improved capacity utilization and consumer demand. Low inflation, sharp fall in commodity prices particularly crude oil and banking system back on track will be the growth drivers.
Elections and political events may lead to volatility in the market. Uncertainty with respect to which party will be coming into power and the actions were taken by them thereafter is likely to create tensions among the investors.
With inflation under control and lowest during the tenure of any government, the economy is expected to do well. When inflation is low, the prices of goods and services rise at a slower pace. Indian products become more competitive compared to international prices. This in return improves the country’s trade balance through a rise in exports.
Firms also prefer low inflation. This is because then it makes it very easier for them in making more investment and which reveals in future costs, prices and wages. If prices change at a slower rate, this gives ample time to firms in spending less time and energy on updating the prices of the goods.
Investment Strategy for 2019
STEP 1: Plan your Investments with a Goal in Mind
STEP 2: Avoid Timing the Market. Always Think Long Term
STEP 3: Start Investing. Start Small if Required
From a wealth creation perspective, have a long term approach for your investments. Start SIPs in Midcap, Small cap or Value funds.
If you are looking at lump sum investments for a long term duration of 5 years or more, then Small and Mid-cap funds should be your choice. For a medium-term view of 3years or so, invest in Balanced.
It is expected that the economy would grow faster in 2019 compared to 2018. Even though the elections are around the corner, the impact of it wouldn’t be very high. Also, to keep growing at a fast pace, it is mandatory for the Indian economy to have a stable government at the Centre which will be able to implement the much-needed reforms.