2019 Equity Market Flashback

Equity markets appeared quite nonchalant to the steady deterioration in the macro indicators in calendar year 2019 (CY19). While the indices moved up to record highs, gains were limited to a handful of index stocks.

he benchmark S&P result of low household incomes, since corporate tax cut and Rs. 96397 BSE Sensex gained an poor job creation and stretched crore in 2019. The markets have been impressive 15.5% during government finances. Despite gloomy polarized as few stocks have been the period, while NSE’s economic data, broader indices are at driving the markets upwards given NiftyT added 12.9%. The broader a dizzy high on the back of multiple the facts that the FII have limited market, however, continued to reel interventions by the Finance Ministry mandate to invest beyond the large under pressure with the Midcap in the last two months, including caps and quality companies. Investors and SmallCap indices sliding 6.1% the cut in the corporate tax rate. A clocking into large cap, quality names and 11.9%, respectively. GDP-growth large chunk of the market run up has have stretched the valuations of the has moderated to multi-year low been due to the FII inflows on the small basket of stocks sought after with real GDP for Q2FY20 grew 4.5% back of easing of policies initiated by the FIIs. With index trading at YoY versus 5.0% YoY in Q1FY20. The around the same time by the central all-time highs and handful of stocks current slowdown in the domestic banks of developed nations; FIIs trading at stratospheric valuations, it macroeconomic environment is the have invested around Rs. 49086 crore is logical that the investments would

January 2020 INSIGHT 46 spill over to the broader market making the rally broad than 20%. However, the quantum of fall in mid-cap and based with participation from quality midcaps in 2020. small-cap companies possibly reflects the weakness in the The performance of large-cap indices are largely skewed macroeconomic environment. Out of the 17 major sectors, by the outperformance of 10-12 large companies. Nifty has only seven could give positive return YTD, while 10 sectors run-up around 12.9% in the past one year, but only four gave negative return. Core sectors like Commodities, large-cap stocks (, ICICI Bank, Bharti Auto, Pharma and Consumption have yielded a negative Airtel and HDFC Ltd.) have contributed more than 60% return YTD in 2019. Finance, Consumer Durable and of all the gains. The performance of large-cap indices Private Banks are the only segment that has outperformed has been neither secular nor broad-based in the past one Nifty this year. year; only 13 out of 50 Nifty constituents have gained more

Nifty trailing P/E (x) Nifty trailing PB Ratio (x) 31 3.9

30 3.8

29 3.7

28 3.6 27 3.5 26 3.4 25 3.3 Jul-19 Jan-19 Jun-19 Oct-19 Apr-19 Feb-19 Sep-19 Mar-19 3.2 Dec-19 Aug-19 Nov-19 May-19

PE Ratio Mean 1 SD+ Jul-19 Jan-19 Jun-19 Oct-19 Apr-19 Feb-19 Sep-19 Mar-19 Dec-19 Aug-19 Nov-19 2 SD+ 1 SD- 2 SD- May-19 Source: NSE, AceEquity Source: NSE, AceEquity

Relative performance for 2019 Nifty Yearly Trailing Performance 115 900 25 21.1 21.8 826 110 19.4 800 18.1 17.2 17.8 17.6 20 105 15.0 15.2 700 14.8 100 15 696 563 95 600 560 499

481 10

90 452 500 446 413 85 395 2.6 2.5 2.6 3.0 2.7 2.9 2.6 5 400 2.3 80 2.4 2.4 300 0

Jul-19 Jan-19 Jun-19 Oct-19 Apr-19 Feb-19 Sep-19 Mar-19 Dec-19 Aug-19 Nov-19 May-19 2012 2015 2016 2017 2018 2013 2014 2019E 2020E 2021E Nifty 50 Nifty Midcap 50 Nifty Smallcap 100 EPS P/E Ratio P/BV Ratio Source: NSE, AceEquity Source: Bloomberg

Earning Yield & Bond Yield Earning Yield / Bond Yield 4.00 7.80 0.61

3.90 7.60 0.59 7.40 3.80 0.57 7.20 3.70 0.55 7.00 3.60 0.53 6.80 3.50 6.60 0.51 3.40 6.40 0.49

3.30 6.20 0.47

0.45 Jul-19 Jan-19 Jun-19 Oct-19 Apr-19 Feb-19 Sep-19 Mar-19 Dec-19 Aug-19 Nov-19 May-19 Jul-19 Jan-19 Jun-19 Oct-19 Apr-19 Feb-19 Sep-19 Mar-19 Dec-19 Aug-19 Nov-19 Earning Yield (%) Bond Yield (%) (RHS) May-19 Source: NSE, AceEquity Source: NSE, AceEquity

47 INSIGHT January 2020 Nifty 500 top 20 performing stocks in 2019 1 Week Return 1 Month Return 3 Month Return 6 Month Return YTD Return Name % Name % Name % Name % Name % Reliance Infra 21.3 KRBL 40.6 Adani Green 164.2 Adani Green 276.6 Adani Green 276.2 Reliance Capital 20.5 Adani Green 35.7 Jindal Steel & 50.3 Dixon Tech 75.5 Aavas Financiers 133.4 Power InfibeamAvenues 18.2 Gayatri Projects 34.1 Avanti Feeds 49.7 ICICI Securities 67.0 RNAM 122.6 Adani Green 16.4 NMDC 25.2 Bliss GVS Pharma 45.9 Avanti Feeds 63.8 HDFC AMC 119.9 Bank Of 15.2 Integ. 24.6 Essel Propack 45.3 62.8 CreditAccess 110.4 Maharashtra Serv. Grameen Indian Overseas 13.0 CRISIL 22.1 Vakrangee 44.8 HDFC AMC 62.8 Dixon Tech 90.0 Bank Indiabulls Ventures 10.5 MAS Financial Serv. 21.7 Adani Transmission 42.4 RNAM 58.5 Manappuram 89.9 Finance Affle (India) 9.5 Dixon Tech 21.4 40.2 Polycab India 57.0 Whirlpool Of India 86.2 IDFC 9.4 Adani Transmission 20.3 DLF 40.2 Whirlpool Of India 56.0 Astrazeneca Pharma 80.4 Whirlpool Of India 8.8 Whirlpool Of India 19.8 InfibeamAvenues 39.0 Abbott India 49.0 78.7 Suprajit 8.2 Essel Propack 18.9 NMDC 38.9 Adani Transmission 48.6 Abbott India 74.4 Engineering Radico Khaitan 7.7 Balrampur Chini 17.9 Polycab India 37.9 Godfrey Phillips 48.1 SRF 73.5 Mills APL Apollo Tubes 7.5 Sunteck Realty 16.5 Dixon Tech 36.7 CreditAccess 48.0 Balrampur Chini 73.0 Grameen Mills Aarti Industries 7.4 Jagran Prakashan 16.5 CRISIL 35.9 MAS Financial Serv. 46.4 SBI Life 72.4 KEI Industries 7.3 ICICI Securities 15.9 Affle (India) 35.8 Navin Fluorine 45.1 PI Industries 72.3 Jindal Steel & 7.0 Indiabulls Ventures 15.4 Motherson Sumi 34.6 HDFC Life Ins. 43.9 ICICI Lombard 72.0 Power Dixon Tech 7.0 Magma Fincorp 15.3 New India Assu. Co. 34.2 Metropolis Health. 42.9 Relaxo Footwears 69.7 IFB Industries 7.0 Mahindra CIE Auto 15.1 Navin Fluorine 34.1 MCX 40.4 68.3 Lemon Tree Hotels 6.7 Navin Fluorine 14.8 34.0 Relaxo Footwears 39.9 Adani Transmission 67.4 Navin Fluorine 6.6 Indiabulls Hous. 14.7 Godfrey Phillips 31.5 Avenue Supermarts 38.5 (India) 66.7 Fin. India

5 out of 5 4 out of 5 3 out of 5

Nifty 500 top 20 destroying stocks in 2019 1 Week Return 1 Month Return 3 Month Return 6 Month Return YTD Return Name % Name % Name % Name % Name % Dishman Carbogen -31.8 Dishman Carbogen -38.7 DHFL -63.2 DHFL -80.2 DHFL -93.4 Arvind Fashions -10.2 ITD Cementation -29.7 Jain Irrigation -60.3 Reliance Capital -80.0 Reliance Capital -93.4 Systems Lux Industries -9.2 DHFL -24.9 Dishman Carbogen -54.3 Lakshmi Vilas Bank -73.2 Reliance Infra -91.2 -8.3 -23.0 Lakshmi Vilas Bank -54.0 Jain Irrigation -71.2 Reliance Power -87.9 Systems Firstsource -6.7 Jain Irrigation -22.9 Reliance Capital -52.0 Suzlon Energy -66.1 Jain Irrigation -87.4 Solutions Systems Systems Trident -6.2 PNB Housing -22.4 Indiabulls Integ. -43.5 Dishman Carbogen -64.8 Lakshmi Vilas Bank -79.6 Finance Serv. Shilpa Medicare -6.1 Himadri Spe. -21.8 VA Tech Wabag -39.3 -61.1 Indiabulls Integ. -78.5 Chem. Serv. Reliance Industries -5.9 PC Jeweller -21.4 Dish TV India -36.7 Magma Fincorp -60.2 Vodafone Idea -73.1 Time Technoplast -5.7 BHEL -20.6 Himadri Chemical -34.8 Yes Bank -57.0 Yes Bank -72.9 Quess Corp -5.5 Central Bank Of -19.7 PC Jeweller -33.4 Reliance Infra -56.1 IIFL Finance -71.2 India

January 2020 INSIGHT 48 1 Week Return 1 Month Return 3 Month Return 6 Month Return YTD Return Name % Name % Name % Name % Name % IRB Infra Devel. -5.3 TCNS Clothing Co -19.7 Chennai Petroleum -33.2 Sadbhav -55.2 PC Jeweller -70.9 Engineering Adv. -5.3 Jyothy Labs -17.3 PNB Housing -33.0 Indiabulls Integ. -54.5 HEG -69.0 Res. Finance Serv. Intellect Design -5.2 TV Today Network -16.4 Prism Johnson -32.8 ITD Cementation -53.4 Birlasoft -67.0 Jai Corp -5.1 IRB Infra -15.9 Sterlite -30.3 Indostar Capital -52.3 Dishman Carbogen -65.3 Developers Technologies Fin. GHCL -5.0 Mangalore -14.9 Caplin Point Lab -30.2 Dish TV India -51.8 Dish TV India -64.6 Refinery -5.0 KEI Industries -14.2 Interglobe Aviation -29.3 Indiabulls Hous. -51.5 Indiabulls Hous. -64.2 Fin. Fin. Tata Elxsi -4.9 HUDCO -14.2 Suzlon Energy -28.6 Gayatri Projects -51.3 Suzlon Energy -63.3 JM Financial -4.9 -14.1 Indiabulls Hous. -28.2 Vodafone Idea -51.0 Chennai Petroleum -60.5 Fin. Motilal Oswal Fin. -4.9 Indian Bank -13.8 Gayatri Projects -28.0 PC Jeweller -50.4 Sterlite -60.4 Technologies NBCC (India) -4.8 Chennai Petroleum -13.6 Spicejet -27.1 Indiabulls Real -48.6 Graphite India -59.5 Estate

5 out of 5 4 out of 5 3 out of 5

30

20 26.4

10 21.1 19.1 16.7 9.9 7.9 3.0 0.8 15.5 12.9 12.8 11.4 0 -1.0 -9.2 -10 -0.3 -5.3 -6.1 -9.4 -11.9 -14.2 -11.4 -17.9

-20 -29.7 -30

-40

IT Infra Auto Metal FMCG Media Power Energy Sensex Midcap Pharma Finance Nifty 50 Telecom Smallcap PSU Bank Nifty 500 Nifty Bank Nifty Next 50 Consumption Capital Goods Nifty Pvt Bank Cons. Durables Source: NSE, AceEquity

Domestic economy worsens began to show some positive results with real estate The domestic economy worsened materially despite sector consolidating and developers with stronger balance better global opportunities, improved infrastructure and sheets benefitting; bank recapitalization and consolidation supportive policy environment. The private consumption has progressed well and shall bear fruits in next couple and investment were the worst affected areas of the of years. Besides, in principle decisions have been taken economy, despite introduction of an elementary Universal to privatize large PSUs like Air India, BPCL, Shipping Basic Income (UBI) program for farmers, best monsoon Corporation etc; the process for development of a vibrant in decades, 135bps fall in policy rates (which have been retail debt market has started on an encouraging note mostly transmitted), and persistently low inflation for with launch of PSU Bond ETFs; some significant changes most part of the year. Almost 70% of the population is have been implemented to strengthen the regulation facing stagflation like conditions with stagnant lower of financial markets and preventing frauds and misuse wages and rising cost of living. Besides, some new sectors of investors’ funds. Overall, many global & domestic of stress emerged in the economy. The business and agencies and experts have expressed serious concern over consumer sentiments are despondent. On the positive the state of India’s economic affairs, while downgrading side, many legislative and procedural changes started the growth forecast. Global rating agencies have even to support the stability and growth. For example, the cautioned about a possible rating downgrade, should the bankruptcy resolution process gathered some pace, economic growth continue to remain low. lending some stability to the banking system; RERA also

49 INSIGHT January 2020 India GSec & AAA Bond Yield Spread (%) Gold price trend in 2019 (USD per Oz) 1.5 1600 1.4 1550 1.3 1500 1.2 1.21 1478.8 1.1 1450

1.0 1400 0.9 1350 0.8 0.7 1300

0.6 1250 Jul-19 Jan-19 Jun-19 Oct-19 Apr-19 Feb-19 Jul-19 Sep-19 Mar-19 Dec-19 Aug-19 Nov-19 May-19 Jan-19 Jun-19 Oct-19 Apr-19 Feb-19 Sep-19 Mar-19 Dec-19 Aug-19 Nov-19 May-19 Source: Bloomberg Source: Bloomberg

US GSec & India GSec Bond Yield Spread (%) Global economy remained in slow lane, 5.4 but ending the year on a positive note The global economy, including the USA, Europe and 5.2 China mostly remained in the slow lane for most part 5.0 of the year. Multiple trade conflicts, most notably between US & China, US & Europe, Japan & Korea, 4.8 slowed down the trade considerably. The uncertainty

4.6 4.65 over Brexit kept the businesses in UK and Europe on the edge. The geo-political tensions, especially in the 4.4 Middle East Asia, Indian sub-continent and Korean peninsula also impacted global trade. Consequently, 4.2 most commodity producing economies struggled with deflationary pressures. However, towards the end of the Jul-19 Jan-19 Jun-19 Oct-19 Apr-19 Feb-19 Sep-19 Mar-19 Dec-19 Aug-19 Nov-19 May-19 year, some signs of stability are emerging. A decisive Source: Bloomberg mandate for conservative party in UK and lessened the INR performance against USD in 2019 Brexit uncertainty considerably. There is also some thaw 73 in Sino-US trade relations. The latest data from China 72 has signaled bottoming out of commodity demand. The 72 central banks of US, BoJ, EU, UK, Canada, India, Australia 71.08 71 etc., have all hit the pause button in their latest policy 71 reviews. US Federal Reserve has cut the interest rate in 70 July, September and October to support the economy 70 and its policy statement has signaled that rates would be maintained at current low levels in 2020, which is 69 expected to support economic growth in the US. The 69 European Central Bank (ECB) has also unveiled monetary 68 easing with 10 bps cut in interest rate (for the first time

Jul-19 since 2016) to -0.5% and has decided to maintain the rate Jan-19 Jun-19 Oct-19 Apr-19 Feb-19 Sep-19 Mar-19 Dec-19 Aug-19 Nov-19 May-19 at current levels till inflation rate falls below 2%. Sensing Source: Bloomberg a revival in global economy, the global equities have registered decent gains in past few weeks. Brent Crude Oil price trend in 2019 (USD per Barrel) 80 3.2 US GSec Bond Yield (%) 75 3.0 2.8 70 2.6 66.17 65 2.4 2.2 60 2.0 1.8 55 1.6 50 1.4 Jul-19 Jul-19 Jan-19 Jun-19 Oct-19 Apr-19 Jan-19 Feb-19 Jun-19 Oct-19 Apr-19 Sep-19 Mar-19 Dec-19 Aug-19 Feb-19 Nov-19 Sep-19 Mar-19 Dec-19 Aug-19 May-19 Nov-19 May-19 Source: Bloomberg Source: Bloomberg

January 2020 INSIGHT 50 Global Indices Performance in 2019 (%) RS. 56088 crore (including debt Rs. 575338 crore in 2019 Nasdaq 34.8 YTD) which has lent a lot of stability to the market. While SIP flows (Rs. 90,094 crore in 11MCY19) remain strong, Brazil IBOVESPA 31.8 lump-sum (non-SIP) flows decline further. Unless interest Russia MOEX 28.0 rates move decisively higher or equities fall sharply the CAC 40 27.5 domestic inflows should remain positive, all other factors DAX 26.0 remaining unchanged. However, the phase of expansion Taiwan 23.1 in MF inflows which started in FY14 and accelerated post Dow Jones 22.4 demonetization is unlikely to attain those levels unless Argentina MERVAL 22.0 there is a full economic recovery Shanghai Comp. 19.6

Nikkei 225 19.1 DII Equity Investments (Rs. Cr.) Sensex 15.0 25,000 FTSE 100 13.4 20,000 15,000 Nifty 12.4 20934

10,000 20395 Hang Seng 7.8 5,000 2147 12491 4,758 5316 3643 Korea KOSPI 7.3 0 Mexico IPC 6.3 -5,000 -566 -4219 Straits Times 5.0 -10,000 -7,970 -1,428 -13930 -15,000 0 10 20 30 40 -20,000 Source: Bloomberg Jul-19 Jan-19 Jun-19 Oct-19 Apr-19 Feb-19 Sep-19 Mar-19 Dec-19 Aug-19 Nov-19 May-19

FPI and DII inflows moderated **23-Dec-2019 Foreign Portfolio Investors (FPIs) have been by and Source: NSE large positive on India over the years and have paid a premium over other emerging markets considering FDI Inflows (USD Bn) some special stocks and sectors in India. However, this 64.2 50 43.5 44.9 44.4 80 45 40.0 year has been a mixed one with FPIs withdrawing after 60 40 35.1 28.1 disappointment in the July 2019 budget only to re-enter 35 30.9 40 8.7 in Sept/Oct after review of tax policy by the Government 30 24.3 3.2 20 22.4 29.3 -1.1 (already YTD 2019 FPI inflow is Rs. 96397 crore in equities 25 27.3 20 8.4 16.3 0 and including debt was Rs. 1,29,936 crore). Despite a 15 -20 26-quarter low GDP reported in the second quarter of 10 -36.2 -40 FY20, FPI flows continued, raising hopes of a turnaround 5 0 -60 in the economy. Multiple factors led to acceleration of domestic institutional investor (DII) flows in the past 2-3 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 years but its pace has been coming down in the current 2019-20* year (2019 DII equity inflow of Rs. 41570 crore was the * upto Jun-19 In USD mn % growth (in USD) (RHS) lowest in three years). Mutual fund equity inflows were Source: DIPP

FII Equity Investments (Rs. Cr.) MF AUM (Rs. Trillion) 40,000 28

30,000 27 20,000 33981 26 27.0 10,000 25231 21193 17220 7920 2273 7548 12368 3939 26.3

0 25 25.9 25.5 -10,000 24 24.8 -5264 24.5 -12419 -17592 -20,000 24.5 24.3 23 -30,000 23.8 23.4 23.2 22 Jul-19 Jan-19 Jun-19 Oct-19 Apr-19 Feb-19 Sep-19 Mar-19 Dec-19 Aug-19 Nov-19 May-19

**23-Dec-2019 Jul-19 Jan-19 Jun-19 Oct-19 Apr-19 Feb-19 Sep-19 Mar-19 Aug-19 Nov-19 May-19 Source: CDSL Source: AMFI

51 INSIGHT January 2020 SIP (Rs. Crore) decisions taken by the government this year. 8350 Corporate tax rate cut: In September, Union Finance 8300 Minister Nirmala Sitharaman announced that effective

8250 8324 corporate Tax rate will be cut from 35 percent to 25

8200 8273

8263 percent without exemptions. The rate, a long standing 8246 8238 8150 8231 industry demand, was seen as one of the many reliefs for 8100 8183 key sectors, including auto and FMCG.

8050 8122

8095 The big bank merger: In September, the Centre 8000 8064 8055 announced it would merge public sector banks and 7950 reduce their number from 27 to 12 over the next few years. 7900 FM Sitharaman unveiled a plan to merge 10 PSBs into four entities, with an aim to revitalise the banking sector. Jul-19 Jan-19 Jun-19 Oct-19 Apr-19 Feb-19 Sep-19 Mar-19 Aug-19 Nov-19 May-19 Three banks -- PNB, OBC and United -- will Source: AMFI combine to form India’s second-largest lender. While Value of M&As halves to $37 billion in and Syndicate Bank will merge to form the 2019 fourth largest PSB, will merge with Andhra Bank and Corporation Bank to create India’s fifth Merger and acquisition (M&A) activity in India halved largest PSB. Additionally, Indian Bank would merge with in value this year from 2018, reflecting fewer billion- Allahabad Bank, making it the seventh largest PSB. dollar deals. According to consulting firm PwC Deals in India, so far saw 765 deals worth $37 billion with only 11 Real estate fund: The government approved a plan to set deals valued at over $1 billion each in 2019, compared up a Rs 25,000 crore alternative investment fund (AIF) with 2018 which saw 25 mega-deals with the highlight to revive stalled housing projects and provide relief to being Walmart Inc.’s $16 billion acquisition of Flipkart. distressed homebuyers. It aimed at revitalising the ailing Challenging global macroeconomic factors such as the realty sector. The Centre claims that incomplete housing US-China trade war contributed to the slowdown in projects worth under Rs 2 crore per unit in , Rs 1.5 deal activity as investors took a cautious approach. M&A crore in other metros and Rs 1 crore in other parts of the deals by foreign firms saw an uptick with inbound deal country will benefit from the decision. activity making up 32% of M&A deal value this year, an Bank recapitalization: The government decided to inject increase from last year’s value of 28%. India has witnessed Rs 70,000 crore budgeted for the recapitalisation of PSBs significant attention from overseas corporates across in FY20 on immediate basis. The highest infusion at Rs sectors including Steel, Energy, Infrastructure and 16,000 crore was for (PNB), followed Financial Services. Despite the challenges, foreign players by Union Bank of India at Rs 11,700 crore. are apparently still bullish on India and eager to take part in the opportunities India presents. However, the Divestments: The Centre kick-started the divestment enthusiasm in the near future would be dependent on processes for select central public sector enterprises both domestic and global volatility as well as government (CPSEs). This included the government’s 53.2 percent reforms. stake in Corporation Limited (BPCL), 63.7 percent in Shipping Corporation of India (SCI) and 30.8 percent of Container Corporation of India (CCI), to a M&A activity by deal type ($ billion) strategic buyer. This excludes BPCL’s equity shareholding in Numalighar Refinery. The Centre also decided to sell 74.2 percent of THDC and 100 percent in North Eastern Electric Power Corporation Limited (NEEPCO) to NTPC.

Changes in FDI norms: The Centre decided to change foreign direct investment (FDI) regulations for single brand retail, coal and lignite mining, digital media and contract manufacturing. The reforms are being seen as Source: Livemint aspiration of India becoming a part of the global supply chain at a time when the US-China trade war has caused Major factors that affected markets in CY disruption. 2019 Year 2019 saw some major policy decisions in the banking, PM-KISAN scheme: Ahead of the 2019 Lok Sabha corporate and real estate sectors. Apart from that, the election, the Centre unveiled the Pradhan Mantri Kisan Finance Ministry is striving hard to bring the economy Samman Nidhi Yojana (PM-KISAN). Under this scheme, back on track. Here’s a quick look at some of the major the government is providing Rs 6,000 per annum in three

January 2020 INSIGHT 52 equal instalments to 14 crore farmers. home buyers or 10 per cent of the The amount is directly transferred to total home buyers file for bankruptcy the bank accounts of beneficiaries. As per the against the developer. Among other The Centre had reportedly latest Report in amendments, it also provides for the transferred these funds to 7.6 crore the Resolving protection of buyers from criminal beneficiaries and distributed Rs proceedings against previous 35,882.8 crore until November 30. Insolvency Index, promoters of the bankrupt firm. The Parliament also passed the Insolvency Ease of Doing Business: In India’s ranking and Bankruptcy Code (Amendment) pursuance to objective of providing jumped 56 places Bill, 2019 which came into effect from greater ‘ease of doing business’ to to 52 in 2019 August 16, 2019. This amendment Bill all stakeholders, bring about greater provides for the timely conclusion of transparency in corporate structure from 108 in 2018. cases, greater flexibility for corporate and fostering better corporate Recovery rate restructuring for maximizing value of compliance so as to enhance the assets, protecting primacy of secured efficiency of the processes under increased from creditors and removing voting Companies Act, 2013, the Ministry 26.5% in 2018 to deadlock of homebuyers among of Corporate Affairs (MCA) has 71.6% in 2019 and others. As per the ministry, out of taken several landmark initiatives/ 21,136 applications filed, 9,653 cases decisions during last one year time taken in involving a total amount of around Rs (January-November 2019). It noted recovery improved 3,74,931.30 crore have been disposed that India has improved its ranking off at pre-admission stage of IBC. on the World Bank’s ‘Doing Business from 4.3 years in Around 2,838 cases were admitted 2020’ report. As per the report, India 2018 to 1.6 years in into Corporate Insolvency Resolution has moved up 14 positions to 63rd 2019. Process (CIRP), out of which 306 position from 77th position in 2018. cases are closed by appeal or review, or were withdrawn. In the 161 Ease of Doing Business Ranking (India) resolved cases, the realisable amount is Rs 1,56,814 crore,

166 as per the statement.

180 154 137 160 136

121 General Election outcome: The landslide victory of the

140 115 120 108 National Democratic Alliance (NDA) government led by 80 100 77 68

63 Narendra Modi lifted indices to a new high on May 24.

80 52 52 60 Both equity benchmarks – S&P BSE Sensex and NSE’s 27 24 40 22 20 Nifty – scaled new milestones of 40,000 and 12,000 levels 0

that day. The outcome was better-than-expected and improved upon the exit polls’ numbers as the BJP alone Rank Taxes Paying

Overall won 303 seats, while the NDA won a total of 353 seats out Getting Business Starting a Property Electricity Permits Resolving Insolvency Borders Registering of 543 seats. Most experts had welcomed the election Construction

Trading Across verdict as the mandate was clear and was even better than 2018 2019 what the NDA got in 2014. Source: pib.nic.in Budget proposals: Finance Minister Nirmala Sitharaman took market participants by surprise when she, in her Insolvency & Bankruptcy framework: As per the latest first Budget speech on July 5, announced a steep hike in Report in the Resolving Insolvency Index, India’s ranking taxes for high-income earners and introduced 20 per jumped 56 places to 52 in 2019 from 108 in 2018. Recovery cent tax on share buybacks by listed companies. The rate increased from 26.5% in 2018 to 71.6% in 2019 and government had proposed to increase the surcharge time taken in recovery improved from 4.3 years in 2018 levied on top of the applicable income tax rate from 15 to 1.6 years in 2019. The latest and the most significant per cent to 25 per cent for those with taxable incomes development in the IBC came in December, when the between Rs 2 crore and Rs 5 crore, and to 37 per cent government introduced the Insolvency and Bankruptcy for those earning over Rs 5 crore, taking the effective Code (Second Amendment) Bill, 2019 in the Lok Sabha. tax rate for them to 39 per cent and 42.74 per cent, Among others changes, after the amendment, home respectively. After drawing flak and facing pressure buyers, willing to take the developer to an insolvency from overseas investors, the government finally rolled court, will now have to ensure that a minimum of 100 back the enhanced surcharge in August to boost sagging

53 INSIGHT January 2020 economic growth. Rules were also tweaked later with RBI rate cuts: In order to pump prime the economy, the companies that had announced buybacks before July 5 Reserve Bank of India (RBI) went on to a rate-cutting were exempted. spree during the year. The central bank has slashed the repo rate by a total of 135 bps this year before hitting Slowing growth: Economic growth in India, as measured a pause button in its latest monetary policy meet in by the gross domestic product (GDP), collapsed to an December. At present, the repo rate stands at nine year- over six-year low of 4.5% in Q2FY20. Factory output low of 5.15 per cent. took a serious hit as the industrial production shrank by 3.8% in October, mainly due to poor performance Repo & Rev.Repo (%) by power, mining and manufacturing sectors. Inflation 7.0 numbers, too, breached the RBI’s medium-term target 6.5 of 4% towards the end of year. In November, retail inflation shot up to a 40-month high of 5.5% in November. 6.0 Wholesale inflation in November increases to 0.58% from a 40-month low of 0.16% in October. 5.5

5.0 Quarterly Real GDP (%) 9.5 8.9 4.5 8.5 8.0 7.7 7.5 7.0 6.8 06-Jun-18 06-Jun-19 04-Oct-19 06-Apr-17 06-Apr-19 07-Feb-19 6.6 02-Aug-17 01-Aug-18 07-Aug-19 6.5 6.0 5.8 Repo Rate (%) Reverse Repo Rate (%) Source: RBI 5.5 5.0 4.5 4.5 US-China trade talks: At the global level, flip-flop by 3.5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 the United States (US) on trade related issues, especially FY18 FY19 FY20 with China, kept market participants on tenterhooks throughout the year. In November, market scaled fresh Source: RBI peaks one after another on the optimism around trade talks between the two largest economies. In the latest GFCF % of GDPmp development, both the countries have agreed on the 30.5 terms of a “phase one” trade deal that reduces some 30.0 US tariffs on Chinese goods while boosting Chinese 29.5 purchases of American farm, energy and manufactured 29.0 goods.

28.5 30.2 Socio-political conditions: Insofar as socio-political 30.0 29.7

28.0 29.2 conditions are concerned, the year 2019 has been marked 28.9 28.8 28.6 with widespread student protests and cases of mob

27.5 28.2 27.9 27.8 outrage. Legislative changes like Abrogation of Article 370 27.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 and Enactment of Citizenship Amendment Act has caused FY18 FY19 FY20 civil unrest in many states. The state center relations Source: RBI seem to have worsened due to rising mistrust and antagonism. Despite winning an overwhelming mandate in the general elections, the BJP’s footprints continue to Foreign Exchange Reserve (USD Billion) 460 shrink in state legislatures. After losing the key states

450 of Madhya Pradesh, and to the Congress last year, BJP lost Maharashtra this year; and 440 could form government in Haryana with the help of 430 opponent Chautala family. In the recently concluded 420 election in Jharkhand BJP has also lost to Congress and 410 JMM alliance party. The primary reason is unreasonably 400 high expectations from the government and aspirations

390 driven by such expectations. There is little indication that this gap between political promise and actual delivery will Jul-19 Jan-19 Jun-19 Oct-19 Apr-19 Feb-19 Sep-19 Mar-19 Dec-19 Aug-19 Nov-19 May-19 be mending anytime soon. Source: RBI

January 2020 INSIGHT 54 2020 Outlook etc. are likely to follow shortly; as and when these policies Equity markets follow the discounting mechanism; being are announced and implemented, they would further one of the leading economic indicators they factor in the reinforce India’s case as an investment destination for economic changes envisaged ahead global MNCs. Sectoral measures like of time. The dichotomy is prevailing announcement of scrappage policy because the market believes that The market for Auto Sector revival, additional there would be a reasonable recovery measures to address the woes of in earnings and economic data believes that NBFCs, public sector banks etc. over FY20-FY22 and high policy there would be would revitalize these sectors and measures to ensure that the economy restore growth in economy at large. is brought back into accelerated a reasonable These measures would also aid build growth path with the target of recovery in up growth in Nifty earnings from FY21 onwards which would drive the reaching $5 trillion economy over earnings and next decade. The government has markets. Rising employment would taken few measures to rejuvenate the economic data lead to more consumption, higher household spend; consecutive good economy, the latest being corporate over FY20-FY22 tax reduction which has put India monsoon for last 3 years would be among boardroom discussions and high policy supporting rural consumption. With as an investment destination for measures to per capita income crossing $2000, the companies looking out for the discretionary consumption shifting their manufacturing bases ensure that is expected to outgrow the basic/ and supply chains out of China. the economy is staples consumption. We expect the Having achieved the rank of 63 upcoming year to be a good year for on Ease of Doing Business, Indian brought back equity investments especially the government has to ensure conducive into accelerated midcaps following the aggressive environment to attract industry to roadmap of reforms undertaken by invest into India and capitalizing on growth path the government. Consequently, there the demographic dividend which with the target is a case for increasing allocation would generate employment to the in quality mid-cap companies for young, educated and burgeoning of reaching $5 relatively better returns in the next workforce. Additional reforms trillion economy 12-18 months. viz, the land and labour reforms, over next decade. Note: All data are of as on December rationalization of personal tax rates 23, 2019

55 INSIGHT January 2020