2019 for the stock markets did not begin well. SENSEX stays flat in the first month, Mid and Small Cap Indices have dropped more than 6.00%.
And this downtrend was expected to happen. After the deep sell off we had in Oct’18, the market was to reach back to those lows before getting bullish again & that should have come after a small upward movement in price. Whereas the small upward move got prolonged.
Isn’t market going up is what all of us want?
Yes, all of us want the markets to go up, while if it does without strength, it gets confused & creates more trouble. Here the upside movement was only coming from a handful of stocks, while the major chunk of the stocks in the market were weak.
Why it happened that only a few were going up?
- Some were having news based up moves which did not have any fundamental support.
- Some stocks were artificially made to hold higher in prices.
- Some were large caps where fund managers parked money to have liquidity because there were no quality small and mid caps showing strength.
- And in some cases government decisions were reasons to hold prices.
All of the above were very minor reasons.
When the market as a whole did not have the strength, it was bound to give way. That is the correction we are seeing now.
How long can this current correction last?
When we said prices have to touch October bottoms for the market to get strong, it should have happened in late November or mid-December, though situations were conducive for a weakness at that time, whereas prices were artificially held higher and correction was delayed.
Now it is fairly late and there are other issues too that have made negative sentiments over crowded.
Let me explain this with an example.
Markets going up and down is like a ball bouncing when you throw it on the floor. Ball hits the floor, goes up, loses momentum & hits the floor before going up again. This is how markets function too, whereas now, the market that hit the floor in Oct, went up, there it got held for a long period using external forces without allowing it to drop.
When it is artificially held high up and suddenly loses support, it collapses again.
The present correction seems to be getting more intense as there are more issues like
- Jet Airways in the verge of collapse,
- Zee group caught in debt trap,
- Indigo giving 75% lesser profit,
- Maruti losing market share
- DHFL staring at a 31K crore scam, said to be the biggest in our history.
December result season is not showing strength too, of the 25% companies that have reported their number, sales growth is significantly higher while profit growth is poor. It gives an indication that there is margin pressure in the market.
It can be either employee cost going up, which doesn’t seem like as most of the people don’t seem to be spending.
Or companies are giving discounts to push their products. In Maruti it was there, this time they were so desperate that they asked all their distributors to force their staff to take vehicles.
So what can be expected for this year?
There are many research houses saying that markets will give 10-15% growth in 2019. As for as our reading of both fundamentals and technical goes, we see a flat market. We might see bouts of selling and buying, while that will not push prices any higher than what it was on Jan 1st.
2019 can be a basing year and next year can have good upside.
Election and budget will also bring its own volatility in the markets. So going light, without big expectations is the need for this year.