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Equity Market

  • Jul 12, 2017

    Equity Commentary – February 2018

    The Indian equity markets ended lower in the month of February 2018, as both Sensex and Nifty were down by 5% and 4.9% respectively. Both, the BSE Midcap & the BSE 200 outperformed the Sensex with a performance of -4.6%. In terms of sectors; Auto, FMCG, Healthcare, IT, Metals and Power were the major outperformers whilst Banking, Consumer Durable, Capital Goods, Oil & Gas and Realty were the major underperformers. FIIs were net sellers in February, with net outflows to the tune of ~USD 1.7 bn. Consequently, the net FII flows CYTD have been ~ USD 455 mn. Net equity investments in February 2018 by domestic MFs in the market were ~USD 2.06 bn.

    Index Name As on As on As on Return in %
    28-Feb-18 31-Jan-18 28-Feb-17 1 Month 1 Year
    Nifty 50 Index 10493 11028 8880 -4.9 18.2
    S&P BSE Sensex 34184 35965 28743 -5.0 18.9
    S&P BSE MID CAP 16563
    17364 13552 -4.6 22.2
    S&P BSE SMALL CAP 18128 18717 13691 -3.1 32.4
    S&P BSE 200 4592 4812 3859 -4.6 19.0
    S&P BSE AUTO 24832 25945 21486 -4.3 15.6
    S&P BSE Bankex 28314 30986 23482 -8.6 20.6
    S&P BSE Consumer Durable 21187 22477 13779 -5.7 53.8
    S&P BSE Capital Good 19076 20364 15333 -6.3 24.4
    S&P BSE FMCG 10506 10711 8800 -1.9 19.4
    S&P BSE Health Care 14113 14559 15385 -3.1 -8.3
    S&P BSE IT 12506 12557 10376 -0.4 20.5
    S&P BSE METAL 15174 15427 11893 -1.6 27.6
    S&P BSE Oil & Gas 15506 16368 13534 -5.3 14.6
    S&P BSE Power Index 2223 2319 2196 -4.2 1.2
    S&P BSE Realty 2468 2609 1495 -5.4 65.1

    The Macro Picture

      January 18 December 17
    WPI 2.8% 3.6%
    CPI 5.1% 5.2%
    Index of Industrial Production 7.1% (for December 2017) 8.8% (for November 2017)*
    Repo rate 6.0% (as on Jan 31, 2018) 6.0% (as on Jan 31, 2018)
    Marginal Standing Facility Rate 6.25% (as on Jan 31, 2018) 6.25% (as on Jan 31, 2018)
    Source: RBI, MOSPI
    *revised upwards from 8.4%


    Index of Industrial Production (IIP) registered second consecutive month of growth at 7.1%, on the back of growth in manufacturing activity which grew 8.8% YoY in December’17. While mining growth in December’17 came in at 1.2% YoY, electricity registered a growth of 4.4% YoY in December’17.

    Q3FY18 GDP growth improved to a five quarter high of 7.2% mainly on the back of resumption of normalcy in the industrial sector and higher investment expenditure.


    India’s Wholesale Price Index (WPI) softened to 2.8% YoY in January’18 compared to 3.6% in December’17. CPI inflation marginally slowed to 5.1% YoY in January’18 from 5.2% in December’17, led by a decline in food inflation and fuel inflation. Food inflation fell to 4.7% YoY in January’18 and fuel inflation fell to 6.4% YoY in January’18.

    RBI Monetary Policy Committee (MPC) Meeting

    In the sixth bi-monthly monetary policy review for FY18, RBI left the benchmark repo interest rate unchanged and the policy stance neutral. The Central Bank raised inflation estimates, even as growth forecasts for FY 18 were pared by 10 bps. The MPC is concerned about inflation given rise in commodity prices, proposal to hike MSP prices for agricultural commodities and impact of fiscal slippage.

    Other macro developments

    The trade deficit widened to US$16.3bn in January, above the monthly average of US$13.4bn seen during Apr-Dec FY18.

    Monthly exports fell to US$24.4bn in January as growth decelerated for the second consecutive month. Textiles exports were down -7.5%YoY and gems & jewelry (up 0.9%). Imports rose to US$40.7bn in January, up 26% YoY. High growth in capital goods (19%YoY), machinery/electronics (+16%), ores and minerals (+42%) though there is an element of base effect, imports suggest strong domestic demand.

    Market Outlook

    Equity markets consolidated in the month of February driven by renewed market concerns on asset quality in the banking system as a large financial fraud unraveled; MSCI’s concerns around restrictive data sharing by local stock exchanges; Introduction of a 10% tax on long term capital gains on equities in the FY19 Budget and heightened global volatility.

    Q3FY18 GDP growth improved to 7.2% from 6.5% in Q2FY18 led by recovery in government expenditure. Growth was led by improvement in agriculture, manufacturing, construction, financial and government services.

    While improvement in manufacturing sector growth reflects gradual normalization of production channels as GST related disruptions eased, higher growth in government services is on account of pick up in the pace of government spending.

    Gross fixed capital formation growth recovered to 12.0% from 6.9% in Q2FY18 reflecting higher capital spending by the government. Investment activity linked to government expenditure has already seen an uptick in the last couple of years and is expected to continue. In roads for example, new ordering as well as execution has shown strong growth in recent times. Similarly, railways have also seen an improvement in capex spends.

    Going forward it is expected that consumption would remain one of the key growth drivers. Urban consumption has been strong so far, driven by moderate food inflation and interest rates. Rural consumption (driven by increasing food prices and revival in sectors such as construction) is also expected to see a gradual uptick, resulting in a broad based consumption growth.

    Risk of significant FII outflows on account of a major global risk off event remains a concern. However, it is important to note that India is much better placed and thus resilient in such an event given its stable macro-economic parameters. Crude oil prices and monthly GST collections would be key numbers to track going forward.

    In terms of our portfolio positioning, we continue to remain overweight on direct and indirect beneficiaries of government push on sectors like roads, railways and housing. 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.

    Strong macro position, reforms and 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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