Tata Mutual Fund

Market Commentary

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Equity Market

Equity Commentary – December 2018

The Indian equity markets were flat for the month of December 2018 and closed the year on a positive note, with the Sensex up by 5.9%, and the Nifty by 3.2%. The broader market; the BSE Midcap & the BSE 200 both underperformed the Sensex with a performance of -13.4% and -0.5% respectively. For CY2018, In terms of sectors; FMCG and IT were the major outperformers whilst all other sectors underperformed the BSE Sensex with only Banking being somewhat closer to the benchmark index. FIIs were net buyers in December, with net inflows to the tune of ~USD 0.25 bn. Net equity investments in December 2018 by domestic MFs in the market were ~USD 0.41 bn.

Index Name As on As on As on Return in %
31-Dec-18 30-Nov-18
29-Dec-17  1 Month 1 Year

Nifty 50 Index

10863 

10877 

10531 

-0.1 

3.2 

S&P BSE Sensex

36068

36194 

34057 

-0.3 

5.9 

S&P BSE MID CAP

15438 

15039 

17822 

2.7 

-13.4 

S&P BSE SMALL CAP

14707 

14427 

19231 

1.9 

-23.5 

S&P BSE 200

4654 

4627 

4679 

0.6 

-0.5 

S&P BSE AUTO

20834 

20900 

26751 

-0.3

-22.1 

S&P BSE Bankex

30377 

29949 

28857 

1.4 

5.3 

S&P BSE Consumer Durable

20695

20526 

22689 

0.8 

-8.8 

S&P BSE Capital Good

18821 

18639 

19134 

1.0 

-1.6 

S&P BSE FMCG

11829 

11647 

10695 

1.6 

10.6 

S&P BSE Health Care

13923 

14333 

14799 

-2.9 

-5.9 

S&P BSE IT

14090 

14297 

11278 

-1.4 

24.9 

S&P BSE METAL

11840 

11832 

14939 

0.1 

-20.7 

S&P BSE Oil & Gas

13749 

13246 

16283 

3.8 

-15.6 

S&P BSE Power Index

1999 

1911 

2382 

4.6 

-16.1 

S&P BSE Realty

1798 

1792 

2608 

0.3 

-31.1 



Index Name As on As on As on Return in %
31-Dec-18 30-Nov-18
29-Dec-17  1 Month 1 Year

Nifty 200

5755 

5733

5814 

0.4 

-1.0 

Nifty 50

10863 

10877 

10531 

-0.1 

3.2 

Nifty Auto

9236 

9270 

12010 

-0.4 

-23.1 

Nifty Bank

27160 

26863 

25539 

1.1 

6.3 

Nifty Commodities

3431 

3397 

4088 

1.0 

-16.1 

Nifty Energy

14335 

14324 

14249 

0.1 

0.6 

Nifty Financial Services

11586 

11439 

10475 

1.3 

10.6 

Nifty FMCG

30517 

30126 

26852 

1.3 

13.6 

Nifty India Consumption

4989

4923 

5104 

1.3 

-2.3 

Nifty Infrastructure

3175 

3087 

3638 

2.9 

-12.7 

Nifty IT

14440 

14638 

11666 

-1.4 

23.8 

Nifty Metal

3155 

3164 

3940 

-0.3 

-19.9 

Nifty Midcap 100

17876 

17504 

21134 

2.1 

-15.4 

Nifty Pharma

8869 

9276 

9620 

-4.4 

-7.8 

Nifty Realty

232 

232 

347 

0.2 

-33.0 

Nifty Smallcap 100

6449 

6216 

9093 

3.7 

-29.1 


The Macro Picture

  December-18 November-18
WPI 4.64% (November 2018) 5.28% (October 2018)
CPI 2.33% (November 2018) 3.31% (October 2018)
Index of Industrial Production 8.1% (October 2018) 4.5% (September 2018)
Repo rate 6.50% (as on December 31, 2018)  6.50% (as on November 30, 2018)  
Marginal Standing Facility Rate 6.75% (as on December 31, 2018)   6.75% (as on November 30, 2018)  
Source: RBI, MOSPI

Inflation

India’s Wholesale Price Inflation (WPI) Index came in at 4.64% YoY in November 2018 as compared to 5.28% for October 2018 on account of moderation in food inflation.
The Consumer Price Inflation (CPI) index came at 2.23% YoY in November as compared to 3.31% in the previous month on benign food prices.

Growth

India’s Real Gross Domestic Product (GDP) grew at 7.1% YoY in Q2 FY19 reducing from the pace of 8.2% in Q1 FY19. Private consumption grew 7% YoY for the quarter. The gross fixed capital formation continued to grow in double digits (~12.5% YoY).

Other macro developments (fiscal deficit and household savings)

India’s fiscal deficit upto November 2018 is 115% of the budgeted estimates. Revenue expenditure has risen 9.8% YoY while capital expenditure has increased 4%. Total receipts and expenditure are up 3.4% and 9.1% respectively. India’s net Household financial savings improved to 7.2% in FY18 from 6.8% of the GDP in FY17.

Market Outlook

Equity markets remained stable during December 2018. With Crude prices close to $50, Government securities market has rebounded sharply - 10 year yields at 7.35%. Corporate bond markets continue the process of stabilization, spread is still on the higher side compared to Gsec markets. NBFC/HFC exposure to reals estate remains a key point of concern going forward. 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. 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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