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Sensex ends FY19 with the biggest gain in 4 fiscal years

FIIs were net buyers of Indian equities worth $162.29 million in FY19, while DIIs were net buyers of shares worth  ₹72,109 crore. (Vipul Sharma/Mint)Premium
FIIs were net buyers of Indian equities worth $162.29 million in FY19, while DIIs were net buyers of shares worth 72,109 crore. (Vipul Sharma/Mint)

  • Sensex gained 17.30% in FY19, in what was a dismal year for small and midcap stocks—BSE Midcap fell 3.03%, BSE Smallcap 11.57%
  • Market experts are bullish on Sensex and Nifty for FY20 and expect a steady earnings growth in the fiscal year

Mumbai: Indian equities outperformed other asset classes in Fiscal Year 2018-19, the last trading session of which was on Friday. Gaining 17.30% in FY19, benchmark index Sensex fared the best in four financial years. In FY18 and FY17, Sensex jumped 11.30% and 16.88%, respectively. The 50-share index Nifty rose 14.93% in FY19 and 10.25% in the previous fiscal year.

However, it was a dismal year for smaller stocks as BSE Midcap and Smallcap indices saw a fall of 3.03% and 11.57%, respectively, in FY19 after a stellar run in the previous two fiscals. Steep valuations and slow earnings growth of mid-cap and small-cap stocks led to sharp corrections in these stocks.

Most analysts, however, believe that midcap and smallcap stocks are poised to see a strong rally soon as their valuations have moderated considerably.

“Historical analysis of midcaps reveals that there have never been two consecutive years of negative returns, and the positive returns in the year after negative returns have always exceeded the negative returns. Based on this observation, we expect the return from midcaps to exceed 15% in 2019 as against -15.3% in 2018," said Elara Securities (India) Pvt. Ltd in a note on 22 March. It believes that with the midcap-largecap premium wiped out, valuations support a midcap recovery.

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(Santosh Kumar Sharma/Mint)

In election years, the brokerage firm is biased towards large-caps and is positive only on selective stocks in the midcap and small-cap segments, said Siddhartha Khemka, head of retail research at Motilal Oswal Securities Ltd. Khemka is bullish on Indian equities in FY20 and believes that liquidity will continue to be sticky in this fiscal.

“After a change in global growth outlook and shift in stance of US Federal Reserve on monetary policy outlook, foreign institutional investors started allocating funds to emerging markets. As geo-political tensions eased in February, FIIs returned to India with renewed enthusiasm, which drove domestic equities," Khemka said.

FII money was missing from India for most of FY19, but they were net buyers of Indian equities worth $162.29 million. Domestic institutional investors (DIIs), including mutual funds and insurance firms, were net buyers of shares worth 72,109 crore, which was lower than the 114,452 crore in the previous fiscal.

DII inflows were getting tightened in the fiscal as midcap and smallcap stocks were under pressure, according to Pankaj Pandey, research head, ICICI Securities Ltd. FII inflows had also tapered down on expectations of a pickup in global growth, which led to fund managers betting on developed markets. Equities will be firm in FY20 as investors are betting on markets hoping for a stable government, said analysts.

Pandey is bullish on Indian markets for FY20 and expects a steady earnings growth in the fiscal. “We see upside to benchmark indices in FY20. Banks earnings will be key drivers of earnings growth," he said. BSE Bankex rose 25.23% in FY19. In the same year, BSE IT index rose 26.28%, while it gained 16.74% in FY18.

The rupee was at a three-year low. It weakened 5.74% after a fall of 0.51% in the previous year. In FY19, gold gave negative returns for the first time in four years. Gold prices were down 2.28% in FY19 after a rise of 6.06% in FY18. Crude prices rose 5.27% after a sharp increase in the first half of the fiscal.

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