2019 was an eventful year for the markets for good and bad reasons. While the Sensex and the Nifty touched new highs, we saw some Non-Banking Financial Companies (NBFCs) struggling to stay afloat and some banks wading through cash crunches.
With India's Gross Domestic Product (GDP) slowing down to 4.5% in the September quarter, several sectors have entered the crisis mode. Here's a look at what's happening and whether to invest in these sectors in the coming year.
Data from the Society of Indian Automobile Manufacturers shows that the total passenger vehicle sales have deflated by 23.5 per cent in the first half of FY2019-20. Even motorcycle sales have skidded by 23.29 per cent in the same period, the worst fall in two decades.
Add to this, the implementation of BS-VI norms. This is expected to push up costs by about Rs 15,000-25,000 for petrol vehicles and by three times as much for diesel cars. The transition to BS-VI may lead to lower demand and production cuts. With the Nifty Auto Index having fallen by 11 per cent in 2019, medium term investors may remain cautious about this sector in 2020 while long-term investors can invest selectively.
Banking, Financial Services & Insurance (BFSI) sector
Lurching from one crisis to another, NBFCs have fallen in the eyes of investors. There's been a liquidity crunch and regulations are still not strong. Banks have had their own problems with higher Non-Performing Assets (NPA). With cooperative banks undergoing insolvency proceedings and some large private sector banks looking for capital infusion, Moody’s Investors Service has a negative outlook for the Asia Pacific banking industry over the next 12 months.
While the sector overall is under crisis, some stocks might outperform. The insurance industry has not been affected and some bank stocks such as HDFC Bank and ICICI Bank may continue to do well. So, be choosy if you want to invest in BFSI stocks.
Real estate sector
This sector has been reeling under debt problems and higher inventories. The Goods & Services Tax (GST) regime hasn't helped. Before GST, a service tax of 4.5 per cent was applicable on under-construction properties. However, post-GST, the rate was 12 per cent. Even though the government slashed GST to 5% without Input Tax Credit, demand hasn't picked up.
Unsold residential inventory in top 7 cities has reduced by 5%, but is still high at more than 6.9 lakh units, according to ANAROCK Property Consultants. 1,665 RERA-registered housing projects being delayed by over five years has led to frustration for investors.
However, the BSE Realty Index has risen by 4% in the last 6 months. So, even though the trend might be reversing, it might take time to see positive results. Medium-term investors can adopt a wait-and-watch policy in 2020 while long-term investors can invest selectively.
Consumer Durables sector
India is a consumption story, so when the economy slows down, consumer durables is one of the first sectors to get hit. Manufacture of consumer durables has contracted by 18% in October this year. The sector is facing challenges due to logistics, finance cost, and higher GST rates. The BSE Consumer Durables Index has fallen by around 2% in the last 6 months.
However, a Frost & Sullivan report says that the appliances and consumer electronics industry will see acceleration in growth because of reducing replacement cycles, wide choice of brands, and products at various price points. So investors can invest selectively based on stock performance consistency.
With a lot riding on how the economy shapes up in the coming year, investors would do well to watch the RBI interest rates, inflation statistics, and the GDP figures before investing.
(By Hemanth Gorur, Co-founder, Hermoneytalks.com, and Managing Partner, Hubwords Media)