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Equity Market

  • Jan 31, 2013

    Equity Commentary –April 2017

    The Indian equity markets ended higher in the month of April 2017, as both Sensex and Nifty were up by 1% and 1.4% respectively. The broader market outperformed the Sensex, as reflected by the performance of the BSE Midcap and BSE 200 index at 5% and 2.3% respectively. In terms of sectors; Auto, Banking, Capital Goods, Oil & Gas and Realty were the major outperformers whilst Metals, Healthcare, IT were the major underperformers. FII flows continued to be positive in April, with net inflows to the tune of ~USD 367 mn. Consequently, FIIs net inflows in CYTD amounts to ~USD 6.36 bn. Net equity investments by domestic MFs in the market were ~USD1.54bn.

    Index Name As on As on As on Return in %
    28-Apr-17 31-Mar-17 29-Apr-16 1 Month 1 Year
    Nifty 50 Index 9304 9174 7850 1.4 18.5
    S&P BSE Sensex 29918 29621 25607 1.0 16.8
    S&P BSE MID CAP 14798 14097 11043 5.0 34.0
    S&P BSE SMALL CAP 15373 14434 11021 6.5 39.5
    S&P BSE 200 4083 3992 3322 2.3 22.9
    S&P BSE AUTO 22782 22013 18469 3.5 23.4
    S&P BSE Bankex 25325 24421 19115 3.7 32.5
    S&P BSE Consumer Durable 15475 15257 11787 1.4 31.3
    S&P BSE Capital Good 17866 16446 13203 8.6 35.3
    S&P BSE FMCG 9412 9270 7697 1.5 22.3
    S&P BSE Health Care 15019 15312 15582 -1.9 -3.6
    S&P BSE IT 9619 10366 11330 -7.2 -15.1
    S&P BSE METAL 11303 11804 7959 -4.2 42.0
    S&P BSE Oil & Gas 14455 13564 9356 6.6 54.5
    S&P BSE Power Index 2330 2274 1846 2.4 26.2
    S&P BSE Realty 1924 1600 1357 20.2 41.8

    The Macro Picture:

    March-17 February-17
    WPI 5.7% 6.5%
    CPI 3.8% 3.7%
    Index of Industrial Production -1.2% (for February 2017) 2.7% (for January 2017)
    Repo rate 6.25% (as on April 30, 2017) 6.25% (as on March 31, 2017)
    Marginal Standing Facility Rate 6.50% (as on April 30, 2017) ** 6.75% (as on March 31, 2017) **
    Source: RBI, MOSPI

    Growth

    The Index of Industrial Production (IIP) contracted by 1.2% YoY in February 2017, relative to the 3.3% YoY increase in January 2017 led by decline in manufacturing and lower demand in capital & consumer goods. Capital goods production declined 3.4% YoY in February 2017 after an increase of 10.9% in January 2017 while consumer goods contracted by 5.6% YoY as compared to an increase of 0.5% YoY in the previous month.

    Inflation

    Consumer Price Inflation (CPI) increased to 3.8% YoY in March 2017 compared to 3.7% YoY in February 2017. While inflation for fuel & light, clothing & footwear, housing, and food & beverages rose on a sequential basis in March 2017, the inflation for pan, tobacco & intoxicants moderated. The core-CPI inflation edged up to 4.9% in March 2017 from 4.8% in February 2017. The trajectory for the CPI inflation indicated by the RBI, builds in a hardening of inflation from H1 FY2018 to H2 FY2018.

    Wholesale Price Inflation (WPI) index eased to 5.7% YoY in March 2017 from 6.5% YoY in February 2017, driven by the softening in inflation in fuel & power and manufactured products. Manufactured products inflation declined to 3.0% YoY in March from 3.7% YoY in February while fuel inflation came in at 18.2% YoY compared to 21% YoY in February 2017. Fuel price inflation moderated on favourable base effect and a fall in most market-linked fuels (ex-aviation turbine fuel). Core WPI inflation eased to 2.1% YoY in March 2017 from 2.4% YoY in February 2017.

    Monetary Policy

    In its monetary policy review meeting held on April 6th, the Reserve Bank of India (RBI) maintained a slightly hawkish stance and kept the repo rate unchanged at 6.25% but narrowed the policy corridor from 50bps either side of the repo rate to 25bps. RBI has kept its growth estimate for FY18 unchanged at 7.4% (Gross Value Added basis) while it has increased its inflation projection to 4.75% for the full year from 4.5% in the previous policy meeting.

    Monsoon

    The Indian Meteorological Department forecasts a normal monsoon this year in an initial assessment. The monsoon is likely to be 96% of long period average (LPA) for the 2nd straight year with fair distribution across the country. Detailed forecasts with more information on El Nino will be available in the month of June.

    Other macro developments

    India’s trade deficit widened to US$ 10.4bn in March 2017 from US$ 8.9bn in February 2017. As a percentage of GDP, it widened to 5.6% in March from 4.9% in February with sequential growth in imports outpacing exports. Exports grew 27.6% YoY in March while imports expanded by 45.3% YoY. Foreign currency reserves stood at ~US$ 371bn as on April 21, 2017 as compared to ~US$ 370bn as on March 31, 2017.

    Market Outlook

    April continued with the trend of positive returns in the Indian equity markets. Encouraging initial monsoon forecasts, visible progress on GST and continued flows both from domestic and foreign investors kept the markets buoyed.

    Initial read through from ongoing earnings season shows performance largely in line with market expectations, with reasonable performance from financials and energy companies, whilst software companies continue to be challenged on growth visibility.

    We believe investors would be well advised to invest with medium to long term perspective and systematically increase exposure to Indian equity markets.

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