Mumbai: The wave of buying that lifted markets worldwide in 2019 passed the Indian markets unnoticed, as election jitters, steep valuations and weak earnings combined to keep investors away.

While stocks in Hong Kong, China and Taiwan have risen 4-10% in 2019 so far, and the Dow Jones index over 10%, India’s benchmark Sensex and Nifty indices fell 1.6% and 2.04%, respectively. In dollar terms, while the Nifty is down 4.22%, the MSCI Emerging Markets (EM) index and the MSCI World index are up 6.72% and 9.7%, respectively.

The MSCI EM index includes 24 countries representing 10% of global market value. The MSCI World index represents large and mid-cap equities across 23 developed markets.

Nifty is down 2% this year even as global markets have rallied.
Nifty is down 2% this year even as global markets have rallied. (Paras Jain/Mint)

Atul Bhole, vice president and fund manager at DSP Investment Managers, said there were multiple factors dampening sentiment. “To begin with, Indian markets are quite expensive as compared to global peers, which is why other markets are preferred. Also, uncertainty around the elections is adding to the jitters," he said.

General elections in India are expected to be held in April-May.

At current levels, one-year forward price-to-earnings (PE) ratio of Sensex is at 17.49, while the MSCI EM and MSCI World are available at 11.59 and 14.93, respectively, according to Bloomberg.

On Monday, the Sensex ended at 35,498.44, down 310.51 points, or 0.87%, while the Nifty closed at 10,640.95, down 83.45 points or 0.78%.

Tensions following the Pulwama terror attack last week have added to the uncertainty around elections, according to Ajay Bodke, chief executive and chief portfolio manager at broking firm Prabhudas Lilladher Pvt. Ltd.

“Markets may suffer at declaration of hostility by India. When risk is heightened, it is the natural instinct of any investor to move away from equities and shift towards safe havens like fixed deposits and gold," Bodke added.

Vinod Karki, vice-president (strategy) at ICICI Securities Ltd, said that earnings disappointment and macro concerns have also weighed on sentiments. “After the interim budget, fears of fiscal slippage have increased while earnings disappointment also continued for another quarter. Moderation in expectations is warranted given that the estimates of real GDP and Nifty profit growth for FY19 from the beginning of CY19 have seen downgrades of 0.2% and 5.6%, respectively, which makes us less enthusiastic about a significant upswing in near-term growth," Karki said.

A weak rupee, high costs, poor demand and tight liquidity hurt earnings growth of Indian companies in the December quarter. A Mint analysis of 2,018 listed companies (excluding banks, financial services firms and oil and gas companies) showed that aggregate profit growth, after adjusting for one-time gains or losses, was at 5.29% in the three months ended 31 December, the slowest in five quarters.

In the September quarter (Q2 FY19), adjusted net profit growth for the same set of companies was at 27.5%. Net sales growth of these firms was at 13% in Q3, while it was 14.3% in the preceding three months.

Meanwhile, foreign investors continued to sell Indian shares. In this year so far, foreign institutional investors (FII) are net sellers of Indian equities worth $91.34 million, while domestic investors have stayed put, buying shares worth 6,903.36 crore. The latter’s investment in Indian equities on Monday was at 2,336.74 crore, the highest in five months.

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