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Equity Market

Equity Commentary – February 2019

Indian equity markets were down for the month of February 2019 with the Sensex down by -1.1%, and the Nifty down by -0.4%. The broader market; the BSE Midcap & the BSE 200 were also down with a performance of -1.7% and -0.5% respectively. In terms of sectors; Auto, Consumer Durables, Healthcare, Oil & Gas, Realty and IT were the major outperformers whilst all other sectors underperformed the BSE Sensex. FIIs were net buyers in February, with net inflows to the tune of ~USD 2.4 bn. Net equity investments in February by domestic MFs in the market were ~USD 0.3 bn.

Index Name As on As on As on Return in %
28-Feb-19 31-Jan-19
28-Feb-18  1 Month 1 Year

Nifty 50 Index

10793 

10831 

10493 

-0.4 

2.9 

S&P BSE Sensex

35867

36257 

34184 

-1.1 

4.9 

S&P BSE MID CAP

14318 

14560 

16563 

-1.7 

-13.5 

S&P BSE SMALL CAP

13690 

13926 

18128 

-1.7 

-24.5 

S&P BSE 200

4563 

4588 

4592 

-0.5 

-0.6 

S&P BSE AUTO

18806 

18495 

24832 

1.7

-24.3 

S&P BSE Bankex

30027 

30731 

28314 

-2.3 

6.1 

S&P BSE Consumer Durable

21410

21256 

21187 

0.7 

1.1 

S&P BSE Capital Good

17088 

17311 

19076 

-1.3 

-10.4 

S&P BSE FMCG

11354 

11616 

10506 

-2.3 

8.1 

S&P BSE Health Care

13761 

13881 

14113 

-0.9 

-2.5 

S&P BSE IT

15254 

15264 

12506 

-0.1 

22.0 

S&P BSE METAL

10767 

10959 

15174 

-1.8 

-29.0 

S&P BSE Oil & Gas

13802 

13612 

15506 

1.4 

-11.0 

S&P BSE Power Index

1829 

1881 

2223 

-2.8 

-17.7 

S&P BSE Realty

1796 

1774 

2468 

1.2 

-27.2 



Index Name As on As on As on Return in %
28-Feb-19 31-Jan-19
28-Feb-18  1 Month 1 Year

Nifty 200

5643 

5666

5700 

-0.4 

-1.0 

Nifty 50

10793 

10831 

10493 

-0.4 

2.9 

Nifty Auto

8355 

8218 

11157 

1.7 

-25.1 

Nifty Bank

26790 

27295 

25107 

-1.9 

6.7 

Nifty Commodities

3306 

3267 

3951 

1.2 

-16.3 

Nifty Energy

14819 

14479 

13991 

2.3 

5.9 

Nifty Financial Services

11227 

11456 

10439 

-2.0 

7.6 

Nifty FMCG

29263 

29801 

26514 

-1.8 

10.4 

Nifty India Consumption

4708

4716 

4806 

-0.2 

-2.0 

Nifty Infrastructure

2918 

2977 

3452 

-2.0 

-15.5 

Nifty IT

15732 

15499 

12809 

1.5 

22.8 

Nifty Metal

2872 

2916 

3994 

-1.5 

-28.1 

Nifty Midcap 100

16721 

16905 

19665 

-1.1 

-15.0 

Nifty Pharma

8885 

8825 

8960 

0.7 

-0.8 

Nifty Realty

230 

229 

327 

0.7 

-29.6 

Nifty Smallcap 100

5934 

6133 

8357 

-3.2 

-29.0 


The Macro Picture

  February 2019 January 2019
WPI 2.76% (January 2019) 3.8% (December 2018)
CPI 2.05% (January 2019) 2.19% (December 2018)
Index of Industrial Production 2.37% (December 2018) 0.48% (November 2018)
Repo rate 6.25% (as on February 28, 2019)  6.50% (as on December 31, 2018)  
Marginal Standing Facility Rate 6.50% (as on February 28, 2019)   6.75% (as on December 31, 2018)  
Source: RBI, MOSPI

Inflation

India’s Wholesale Price Inflation (WPI) Index came in at 2.76% YoY in January 2019 as compared to 3.8% for December 2018 on account of moderation in food inflation.
The Consumer Price Inflation (CPI) index came at 2.05% YoY in January as compared to 2.19% in the previous month on benign food prices.

Growth

India’s Real Gross Domestic Product (GDP) grew at 6.6% YoY in Q3 FY19 reducing from the pace of 7.1% in Q2FY19. Private consumption grew 8.4% YoY for the quarter. The gross fixed capital formation continued to grow in double digits (~10.6% YoY).

Other macro developments (fiscal deficit and household savings)

India’s fiscal deficit as per revised estimates for FY19 is likely to be 3.4% against the earlier budgeted 3.3%, a marginal increase – a decent performance by the government given the headwinds it faced on lower GST tax collections. The budgeted number for FY20 also stands at 3.4% including the new income supplement scheme for marginal farmers to the tune of approximately US$70bn.

Market Outlook

Recent terror attack in the state of J&K prompted the Indian government to eliminate some terror camps within Pakistan which led to Pakistan also hitting back in a small way. Though this event has not impacted markets in any manner till date, the relevance of the same is that within India, the popularity of Prime Minister Modi has likely gone up disproportionately specially when general elections are around the corner.

Equity markets during February 2019 corrected with BSE Sensex down by -1.1%. Near term issues of liquidity tightness for the NBFC/HFC sector continues, Banks are a direct beneficiaries of the current trend both from an asset as well as liability perspective. Micro story for India, in terms of better corporate earnings growth going forward remains positive, making us optimistic on the long term potential for returns from the Indian Equity as an asset class.

Farm loan waivers/handouts are increasingly becoming popular instruments among all political parties constraining future government capital expenditure and crowding out potential private investments. FY20 budget has more of the same with the government promising Rs 6000 per annum income support scheme for marginal farmers totaling to approximately US$70 bn annual spend. We will watch out for risks if any on our portfolio companies going forward.

Near term strong 15%+ CAGR earnings growth by Nifty/Sensex companies along with reasonable valuations make us optimistic of our performance going forward.

In terms of our portfolio positioning, we remain focused on companies with faster earnings growth visibility. We continue to remain overweight on private sector banks on account of their ability to gain market share and maintain relatively higher growth rates.

Long-term structural drivers like demographic advantage, low household debt, limited penetration across different consumer categories, increased potential for financial savings and urbanization makes India a compelling equity story from medium to long term perspective.

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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