Equity set to deliver in FY20, but gold and realty hold little hope

NEW DELHI: Investors desperately chased growth in equities, shelved plans to buy dream homes, found no lustre in gold, rued stagnant fixed deposit rates but continued SIPping in mutual funds month after month only to end the financial year with disappointment across asset classes. Analysts tracking various asset classes are projecting FY20 to be a good one for equities, but say residential realty is yet to see the worst. Gold, they say, could be a good hedging tool and can be bought on dips. On the other hand, base metals may do well selectively. Equities: A tale of polarisationIt was a poor year for equities, with roughly 77 per cent, or 2,150 stocks, out of 2,800 listed stocks ending the year lower. The market did reward certain largecaps, which lifted the aggregate marketcap of BSE-listed stocks by nearly Rs 8 lakh crore during the financial year gone by. Smallcap and midcap investors hardly made money. The indices for the second-run stocks peaked in FY18 and saw bouts of selloff all through FY19. The BSE Smallcap index tumbled 11.57 per cent while BSE Midcap index ended the year 3 per cent lower.The 17 per cent return by largecap Sensex – best in four years – best reflected the polarisation with only a handful stocks pulling the index up, as investors preferred to chase scarce growth than value. At the same time, many other largecaps plunged 30-40 per cent from their one-year highs. Data suggests only 11 index stocks – including Bajaj Finance, Reliance Industries, Axis Bank, ICICI Bank and TCS – managed to beat Sensex returns.The depressed broader market had a ruboff on the primary market, as only 14 mainboard IPOs raised Rs 14,674 crore against Rs 83,767 crore in FY18. Among them, only two issues had PE/VC investment, which showed PE investors chose to wait as things went downhill.Half of the 14 IPOs saw 1-3 times subscriptions. Pranav Haldea, Managing Director, PRIME Database, said the tepid response to IPOs was further accentuated by poor listing performance. Out of the 18 listings of the year, 11 ended FY19 above issue prices, including top debutants Mishra Dhatu Nigam (up 56.72 per cent), Lemon Tree (43.66 per cent), Aavas Financiers (41.39 per cent) and RITES (40.03 per cent).Mutual funds tested investor nerveThose seeking double-digit returns from MFs were left disappointed. Except for largecap equity funds, none of the other categories managed to deliver double-digit returns. Bond-focussed mutual funds delivered 4.7-7.3 per cent return compared with SBI’s 1-year fixed deposit rate of 6.8 per cent. 68668270 Vidya Bala, Head of Mutual Funds Research at FundsIndia, said midcap and smallcap fund categories did well to restrict the declines that investors would have faced in direct equity. For example, the smallcap category equity funds on an average declined 7 per cent against a 11 per cent drop in BSE Smallcap Index.“No fund manager can defy the market. The question is, can they restrict declines better?” She said. The silver lining: SIP flows into mutual fund categories (across debt and equity) signalled the maturing of the investor class. 68668259 Bullion lost lustre, base metals did wellGold offered a tepid 3 per cent return for the financial year, rising to Rs 31,667 per 10 gm from Rs 30,630. Silver prices fell 2.3 per cent to Rs 37,270 per 10 gm from Rs 38,325.Globally, gold prices fell 2 per cent for the year, but as rupee value against the dollar fell to 68 level from 65, it pushed domestic prices marginally higher. Gold ruled around Rs 33,500 level during the year as rupee value hit a record low. The price rise dented demand. “Gold demand weakened post the recent rally. Silver, an industrial metal, saw some demand, but for its prices to rise, it also needed support from gold and other precious metals, which was not there,” said Gnanasekar Thiagarajan, Director, Commtrendz. The metals pack selectively performed well amid the US-China trade tension. Aluminium prices climbed 16.16 per cent to Rs 150.90 on MCX from Rs 129.90 a 1 kg a year ago. During the year, US imposed 10 per cent import duty on Chinese aluminium and China slapped 25 per cent import duty on aluminium scrap from the US. Tin prices climbed 8 per cent to Rs 1,491.50 per kg, copper rose 4 per cent to Rs 447.75 per kg and Nickel gained 4.5 per to Rs 900 per kg. Lead prices fell 10.8 per cent to Rs 139.85 while zinc prices declined 4 per cent to Rs 207.50 per kg from 214.10 per kg. Thiagarajan said the metals that performed well during the year had supplyside issues.Residential market under pressureArvind Nandan, Executive Director-Research at Knight Frank India, says real estate’s was a tale of two contrasting facets of the same picture, where the office sector (commercial properties) scaled a new peak with nearly 47 million square feet of leases across top seven cities, but the residential space remained under tremendous pressure.Despite the gloom of financial crunch and apparent lack of demand, sales did show a small, but noteworthy, rise at the year-end, Nandan said. Data suggests sales rose 6 per cent across top cities, which though was nothing when seen from the perspective of last eight years’ performance,” he said. Developers learnt to focus on the affordable segment more than at any time in the recent past. Almost 60 per cent of infusions were in the sub-Rs 50 lakh category. It did help during tough times, he said.What's up ahead?For equities, the broader market may join the largecap rally in FY20. So far, the consensus EPS CAGR for Nifty midcap in FY19-21 is at 22.4 per cent, which provides a strong fundamental support, said Elara Capital.“Historical analysis of midcaps reveals there has never been two consecutive years of negative returns; and positive returns in the year after negative returns have always exceeded the negative returns,” the brokerage said. In the case of mutual funds, while largecap, midcap and multi-cap funds look safe bets, opportunities lies in midcap and smallcap funds as some of the quality funds in these categories are down quite a bit, Bala said. For real estate, the worst is yet to come in the residential space, said Nirmal Bang Institutional Equities. “We Expect a further decline in prices followed by a U-shaped recovery. Sales volume has increased, but remained substantially below peak level,” it said.Data showed residential sales are just half the amount spent on construction in 2018. The stress in the residential segment is expected to continue for two to three more years.Nandan said residential developers will have to put their money where the mouth is.“The markets are likely to remain tilted in favour of buyers in the near future. Regardless of the new GST and corresponding ITC conundrum, as well as pressure on margins, prices will remain attractiveness. While the commercial market will look to match or even better earlier performance on the back of India’s generally good economic indicators, job markets and financial security of end-users will have to become stronger for the residential sector to pick up from where it left at end-2018," Nandan said.He projected around 8 per cent return from the commercial sector in FY20.Thiagarajan sees gold at around Rs 33,000 per 10 gm by FY20 end. He advised investors to see each base metal independently. “Copper might do extremely well. Nickel and Zinc may also do well, but other metals may not,” he said. 68667679 68666267

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