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Equity Market

Equity Commentary –  April 2019

Indian equity markets were a mixed bag for the month of April 2019 with the Sensex up by 0.9%, and the Nifty by 1.1%. The broader market; the BSE Midcap & the BSE 200 were down with a performance of -3.8% and 0.2% respectively. In terms of sectors; IT and Metals were the major outperformers whilst all other sectors underperformed the BSE Sensex. FIIs were net buyers in April, with net inflows to the tune of ~USD 3 bn. Net equity selling in April by domestic MFs in the market were ~(USD 0.7 bn).

Index Name As on As on As on Return in %
30-Apr-19 29-Mar-19
30-Apr-18  1 Month 1 Year

Nifty 50 Index

11748 

11624 

10739 

1.1 

9.4 

S&P BSE Sensex

39032

38673 

35160 

0.9 

11.0 

S&P BSE MID CAP

14889 

15480 

17012 

-3.8 

-12.5 

S&P BSE SMALL CAP

14625 

15027 

18402 

-2.7 

-20.5

S&P BSE 200

4915 

4908 

4724 

0.2 

4.1 

S&P BSE AUTO

18839 

18825 

25834 

0.1

-27.1 

S&P BSE Bankex

33328 

34142 

28652 

-2.4 

16.3 

S&P BSE Consumer Durable

23874

23857 

22380 

0.1 

6.7 

S&P BSE Capital Good

18031 

18472 

19543 

-2.4 

-7.7 

S&P BSE FMCG

11764 

11742 

11306 

0.2 

4.1 

S&P BSE Health Care

14367 

14408 

14154 

-0.3 

1.5 

S&P BSE IT

16264

15280 

13568 

6.4 

19.9 

S&P BSE METAL

11513 

11355 

14277 

1.4

-19.4 

S&P BSE Oil & Gas

15358 

15270 

14430 

0.6 

6.4 

S&P BSE Power Index

1970 

2034 

2238 

-3.2 

-12.0 

S&P BSE Realty

2009 

2077 

2430 

-3.3 

-17.3 



Index Name As on As on As on Return in %
30-Apr-19 29-Mar-19
30-Apr-18   1 Month 1 Year

Nifty 200

6093 

6080

5862 

0.2 

3.9 

Nifty 50

11748 

11624 

10739 

1.1 

9.4 

Nifty Auto

8351 

8335 

11626 

0.2 

-28.2 

Nifty Bank

29765 

30427 

25532 

-2.2 

16.6 

Nifty Commodities

3688 

3626 

3829 

1.7 

-3.7 

Nifty Energy

16500 

16484 

13770 

0.1 

19.8 

Nifty Financial Services

12555 

12544 

10676 

0.1 

17.6 

Nifty FMCG

30337 

30321 

28773 

0.1 

5.4 

Nifty India Consumption

4814

4855 

5094 

-0.9 

-5.5 

Nifty Infrastructure

3108 

3208 

3503 

-3.1 

-11.3 

Nifty IT

16705 

15628 

13986 

6.9 

19.4 

Nifty Metal

3089 

3044 

3775 

1.5 

-18.2 

Nifty Midcap 100

17566 

18259 

20290 

-3.8

-13.4 

Nifty Pharma

9403 

9347 

9061 

0.6 

3.8 

Nifty Realty

258 

269 

322 

-4.0 

-19.8 

Nifty Smallcap 100

6468 

6673 

8390 

-3.1

-22.9 


The Macro Picture

  April 2019 March 2019
WPI 3.18% (March 2019) 2.93% (February 2019)
CPI 2.86% (March 2019) 2.57% (February 2019)
Index of Industrial Production 0.08% (February 2019) 1.66% (January 2019)
Repo rate 6.0% (as on April 30, 2019)  6.25% (as on March 31, 2019)  
Marginal Standing Facility Rate 6.25% (as on April 30, 2019)   6.50% (as on March 31, 2019)  
Source: RBI, MOSPI

Inflation

India’s Wholesale Price Inflation (WPI) Index came in at 3.18% YoY in March 2019 as compared to 2.93% for February 2019 on account of stable food inflation.
The Consumer Price Inflation (CPI) index came at 2.86% YoY in March as compared to 2.57% 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$10bn.

Market Outlook

The change in stance among the central banks across the globe specially US with them being more dovish opens doors for the so called carry trade to restart. US $ is unlikely to appreciate in the near term which is prompting the RBI to infuse liquidity in the market by using new instruments like to $5 bn swap trade completed on 26th March and 23rd April 2019. Over the past few months we have been highlighting tight liquidity in the domestic market as a key concern area – this concern in a few months may go away if the current trend continues which augurs very well for lending rates in India and hence equity markets.

In the near term, results for the general election on 23rd May 2019 has a potential to increase volatility. Current consensus expectation is for the Modi government to be reelected albeit with some reduction in seats compared to 2014.

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$10 bn annual spend. The key opposition party, Congress, has announced that they intend to start a minimum income guarantee scheme of Rs 72,000 per annum for the 20% of least poor population ie approximate cost on an annual basis of Rs 3,60,000 cr (US$ 50 bn), if they win the elections. 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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