Equity Commentary –February 2017
The Indian equity markets ended higher in the month of February 2017, as both Sensex and Nifty were up by 3.9% and 3.7% respectively. The broader market outperformed the Sensex, as reflected by the performance of the BSE Midcap and BSE 200 index at 5.4% and 4.3% respectively. In terms of sectors; IT, Consumer durables and Realty were outperformers whilst Auto, Metals and Power were the major underperformers. FII flows turned positive in February after 4 months of outflows, with net inflows to the tune of ~USD 1.5 bn. Consequently, FIIs net inflows in CYTD amounts to ~USD 1.3 bn. Domestic MFs witnessed net inflows of ~USD 300 m during the month.
|Index Name ||As on ||As on ||As on ||Return in % |
|28-Feb-17 ||31-Jan-17 ||29-Feb-16 ||1 Month ||1 Year |
|Nifty 50 Index
|S&P BSE Sensex
|S&P BSE MID CAP
|S&P BSE SMALL CAP
|S&P BSE 200
|S&P BSE AUTO
|S&P BSE Bankex
|S&P BSE Consumer Durable
|S&P BSE Capital Good
|S&P BSE FMCG
|S&P BSE Health Care
|S&P BSE IT
|S&P BSE METAL
|S&P BSE Oil & Gas
|S&P BSE Power Index
|S&P BSE Realty
The Macro Picture:
Source: RBI, MOSPI
| ||January-17 ||December-16 |
|Index of Industrial Production
||-0.4% (for December 2016)
||5.7% (for November 2016)
||6.25% (as on February 28, 2017)
||6.25% (as on January 31, 2017)
|Marginal Standing Facility Rate
||6.75% (as on February 28, 2017)
||6.75% (as on January 31, 2017)
India’s GDP grew by 7% YoY for the quarter ended December 2017, a slight moderation versus 7.2% in the previous quarter. The dip in growth was milder than expected post demonetization, driven by expansion of both private and government consumption accompanied by a slight increase in growth in gross fixed capital formation.
Consumer Price Inflation (CPI) index moderated to 3.2% YoY in January 2017 versus 3.4% YoY in December 2016. Moderation in inflation continued in food & beverages, clothing and footwear, while fuel inflation inched up.
Wholesale Price Inflation (WPI) index rose significantly to 5.2% YoY in January 2017 from 3.4% YoY in December 2016, reflecting rising commodity prices viz. coal and mineral oils.
The Reserve Bank of India (RBI) left the policy rates unchanged while moving the policy stance from “accommodative” towards “neutral”. RBI is of the view that risks to inflation are to the upside from the current benign inflation environment.
Other macro developments
India’s trade deficit declined to a four-month low of US$9.8bn in January 2017 from US$10.4bn in December 2016 even as imports growth outpaced exports growth. Non-oil exports growth remained muted at 1.6% YoY while non-oil, non-gold imports were up 4% YoY. Foreign currency reserves stood at ~USD363bn as on February 19, 2017 as compared to ~USD362bn towards the end of January 2017.
February was a good month for global equity markets. During the month many developed markets and emerging markets, including India, performed well. The Indian markets continued to rally on account of flows from both domestic and foreign institutional investors.
The increase in markets is also reflective, to a certain extent, of the milder than expected impact of demonetization, as visible in the third quarter results. A balanced approach to union budget with continued focus on infrastructure and fiscal consolidation also aided positive sentiments in the market.
Going ahead, on the domestic front, the outcome of elections in five states including India’s largest state, Uttar Pradesh and successful implementation of GST are the events to watch out for. In the near term, global liquidity flows and economic policies of developed nations continue to be a key determinant for emerging market performance including India. Reversal of FII flows due to global events remains a key risk to the Indian market, however, it is important to note that India is much better placed to handle such an event given its healthy macro-economic parameters.
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 use volatility to increase exposure to Indian equity markets.