The last trading session of 2018 was rather dull, with the markets ending on a flat note. The year itself, however, stood in stark contrast to its last trading day. Throughout the previous year, the NIFTY was consistently affected by events both global and domestic in nature. These included, among others, the threat of trade war, the Fed continuing to rise interest rates in the US, sharp spikes in crude prices followed by equally sharp declines, volatile domestic currency, regional conflicts in Asia/Pacific with escalating tensions between the US and North Korea, state elections in India and the sudden resignation of the RBI Governor.
Because of all these factors, markets in general remained immensely volatile. NIFTY, which had earlier in the year returned over 12% on a YTD basis, settled the year with YTD Returns of just 3.15%.
Sector analysis, as of the end of December 31, 2018, does not paint a pretty picture. Out of 18 sectors under review, 13 sectors ended with losses, 1 sector remained flat and only 5 sectors reported gains.
If we shift our analysis from pictorial view to actual figures, the table shown above throws up interesting insights. The NIFTY Realty, Media and Auto Indexes remained the top 3 under-performers, losing 33.02%, 25.92% and 23.10% respectively on a YTD basis. NIFTY IT, FMCG and Financial Services performed best, gaining 23.78%, 13.65% and 10.60% respectively.
As we step into 2019, we must remember that the coming year is likely to remain extremely stock-specific in nature. Volatility is likely to remain an integral part of the trade as we will face the general elections going forward.
The above two charts show the Relative Strength (RS) of various sector indexes against the broader markets (CNX500). These sectors are likely to relatively out-perform the general markets and will help investors give a resilient start to 2019.
As evident in the charts, the Consumption, IT, FMCG, Financial Services and Bank NIFTY are in a continuing uptrend, with the RS seen to be in a firm uptrend. The RS line is also seen above its 50-Week MA which acts as further confirmation of its continuing out-performance. Apart from this, PHARMA, Infrastructure and PSU Banks are seen ending their long-term downtrend, with their trajectories flattening and trends reversing. All these sectors, collectively, are likely to perform much better when bench-marked against the broader markets and are set to offer resilient (albeit relative) out-performance going ahead.
Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst