Tata Mutual Fund

Market Commentary

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Equity Market

Equity Commentary – August 2018

The Indian equity markets saw positive returns, with the Sensex up by 2.8%, whilst the Nifty was up by 2.9%. The broader market; the BSE Midcap & the BSE 200 both outperformed the Sensex with a performance of 5.4% and 3.5% respectively. In terms of sectors; Consumer Durables, Capital Goods, FMCG, Healthcare, IT, Metals and Power were the major outperformers whilst, Auto, Banking, Oil & Gas and Realty were the major underperformers. FIIs were net buyers in August, with net inflows to the tune of ~USD 263 mn*. Consequently, there have been net FII outflows CYTD of ~USD 199 mn. Net equity investments in August 2018 by domestic MFs in the market were ~USD 588 mn.*Note: Flows data for FII not available for 17th August’18

Index Name As on As on As on Return in %
31-Aug-18 31-Jul-18
31-Aug-17 1 Month 1 Year

Nifty 50 Index

11681 

11357

9918 

2.9 

17.8 

S&P BSE Sensex

38645 

37607 

31730 

2.8 

21.8 

S&P BSE MID CAP

16881 

16013 

15540 

5.4 

8.6 

S&P BSE SMALL CAP

17193 

16584 

15992 

3.7 

7.5 

S&P BSE 200

5041 

4871 

4335 

3.5 

16.3 

S&P BSE AUTO

24716 

24497 

23689 

0.9 

4.3 

S&P BSE Bankex

31742 

31006 

27441 

2.4 

15.7 

S&P BSE Consumer Durable

21696 

20902 

17701 

3.8 

22.6

S&P BSE Capital Good

18997 

18296 

17331 

3.8 

9.6 

S&P BSE FMCG

12772 

12013 

10174 

6.3 

25.5 

S&P BSE Health Care

15945 

14206 

13149 

12.2 

21.3 

S&P BSE IT

15549 

14527 

10064 

7.0 

54.5 

S&P BSE METAL

13821 

12660 

13284 

9.2 

4.0 

S&P BSE Oil & Gas

15079 

15024 

15177 

0.4 

-0.6 

S&P BSE Power Index

2141 

1975 

2261 

8.4 

-5.3 

S&P BSE Realty

2141 

2095 

2138 

2.2 

0.2 


The Macro Picture

  June-18 May-18
WPI 5.1% 4.4%
CPI 4.2% 5.0%
Index of Industrial Production 7.0%(for June 2018) 3.2% (for May 2018)
Repo rate 6.50% (as on August 31, 2018) 6.50% (as on August 1, 2018)
Marginal Standing Facility Rate 6.75% (as on August 31, 2018) 6.75% (as on August 1, 2018)
Source: RBI, MOSPI

Inflation

India’s Wholesale Price Inflation (WPI) Index came in at 5.1% YoY in July 2018 as compared to 5.8% for June driven by a favourable base and easing food inflation. Food inflation came in at -2.2% as against 1.8% YoY in June.

The Consumer Price Inflation (CPI) index eased to 4.2% YoY in July as compared to 5.0% in the previous month on softening food prices.

Growth

India’s Real Gross Domestic Product (GDP) grew at 8.2% YoY in Q1 FY19 exceeding 5.6% growth in Q1 FY18 and 7.7% in Q4 FY18. The Nominal GDP growth came in at 13.8% versus 10.9% in Q4FY18. Private consumption grew 8.6% YoY for the quarter (highest in six quarters). The gross fixed capital formation continued to grow in double digits (~10% YoY).

Other macro developments (fiscal deficit and household savings)

India’s fiscal deficit upto July 2018 is 86.5% of the budgeted estimates. Revenue expenditure has risen 9.1% YoY while capital expenditure has increased 17%. Total receipts and expenditure are up 15% and 10% respectively. India’s net Household financial savings improved to 7.2% in FY18 from 6.8% of the GDP in FY17.

Update on monsoon:

Indian monsoons are 6% lower than long period average till end of August. This, however, hasn’t affected sowing significantly; the total area sown till August 31, 2018 stood at ~102.3 million hectares, largely unchanged from the same period in the previous year.

Market Outlook

Equity markets reached new highs during the month of August 2018 on the back of strong domestic flows and better earnings delivery by corporate India for Q1FY19 (first quarter of financial year FY19). Higher Crude prices, along with higher current account deficit is putting pressure on interest rates, liquidity and currency in the short term in India which needs to monitored going forward. However, 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.

The recently announced minimum support price (MSP) hikes on certain key agricultural commodities and further cut in GST rates on certain consumer categories (electronics, footwear, Paints etc.) should boost consumption in both rural and urban respectively. While rising inflation is an impending risk, we expect demand to remain strong in light of the aforesaid recent government initiatives. We maintain our view of broad based consumption being a key growth driver.

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. We are also diversifying exposure to consumption plays across multiple  themes.


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