Stock market to remain volatile in 2020: Analysts

Mumbai: After a forgettable 2019, the equity market outlook for 2020 cited by the brokerages signal better days ahead. Though there is optimism, the market is expected to be volatile with sharp deep corrections, which will be bought into, analysts said.

Most brokerages and market experts see limited upside for Nifty and Sensex indices in 2020 after the recent rally as market risk-reward was getting less attractive in the near-term, though stock-specific action in mid-cap and small-cap space could net even 100 per cent returns in close to 100 stocks.

Analysts led by Gautam Chhaochharia of UBS Securities India have given the Nifty-50 a target of 12300 by June 2020, factoring in the risks to the equity market. Other brokerages also see the Nifty-50 in the range of 12000 to 13000 in 2020 while Morgan Stanley sees the Sensex touching 45000 next year in the best case scenario.

“The risks to our long-term estimates, for example, for corporate earnings and macroeconomic variables (such as GDP growth rates and inflation) are an economic slowdown, a weakening currency, global economic events and government policy changes," UBS Securities said.

Indian companies with business interest spread globally stand to benefit even if domestic growth remains muted in 2020 as US-China trade deal progresses without much hiccups henceforth.

J P Morgan, in its global market outlook for 2020, said, “After a year dominated by US- China trade tensions, fears of a hard Brexit and a global slowdown, 2019 comes to a close on a high note, with the S&P 500 hitting a fresh record high as concerns surrounding these geopolitical tail risks have eased. Looking ahead to 2020, global growth is still slowing, but the case for a rebound is building and the synchronised easing by 23 central banks has taken place since mid-2019 supports a recovery in global activity in the first half of 2020.”

“EM (emerging market) equities stand to benefit most from a turn in global manufacturing, a Phase-1 trade truce, and from some likely pick-up in China,” said Mislav Matejka, global equity strategist at J P Morgan.

Reason for hefty stock specific return in 2020 will not be a big improvement in earnings but deep corrections in the recent past, which will result in short covering resulting in hefty returns from a lower base price.

“An analysis of the stocks traded on the NSE shows that between Nov-2018 and Nov-2019 around 800 stocks out of the around 1,500 stocks fell by more than 20 per cent (though Nifty is up 10.8 per cent) and the share price of 92 stocks fell below Rs 10,” said HDFC Securities.

The year 2020 will be a year of slow and stable economic growth recovery worldwide, status quo on monetary policies, demand-driven higher commodity prices, firmer oil prices, benign USD, and higher bond yields,” 2020 market outlook of IndiaNivesh, a brokerage house said.

“Major environmental and technological movements and advances are likely to disrupt existing norms. Key qualities required for investors are to identify areas of disruption and companies with pricing power. Overall, anticipate globally lower returns and higher volatility for most financial assets than in the past decade. However emerging markets as an asset class could start performing better over the next few years after underperforming over the past 10 years,” said HDFC Securities.