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Market Commentary

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Equity Market

Equity Commentary – June 2018

The Indian equity markets ended flat in the month of June 2018, as the Sensex was up by 0.3%, whilst the Nifty was down by 0.2%. The broader market; the BSE Midcap & the BSE 200 both underperformed the Sensex with a performance of -3.5% and -1.0% respectively. In terms of sectors; Healthcare and IT were the major outperformers whilst, Auto, Banking, Consumer Durable, Capital Goods, FMCG, Metals, Oil & Gas, Power and Real Estate were the major underperformers. FIIs were net sellers in June, with net outflows to the tune of ~USD 707 mn. Consequently, there have been net FII outflows CYTD of ~USD 792 mn. Net equity investments in June 2018 by domestic MFs in the market were ~USD 967 mn.


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

Nifty 50 Index

10714 

10736 

9521 

-0.2 

12.5 

S&P BSE Sensex

35423 

35322 

30922 

0.3 

14.6 

S&P BSE MID CAP

15451 

16014 

14644 

-3.5 

5.5 

S&P BSE SMALL CAP

16032 

17249 

15411 

-7.1 

4.0 

S&P BSE 200

4608 

4654 

4149 

-1.0 

11.1 

S&P BSE AUTO

23838 

24472 

23408 

-2.6 

1.8 

S&P BSE Bankex

29251 

30007 

26278 

-2.5 

11.3 

S&P BSE Consumer Durable

20207 

20670 

16013 

-2.2 

26.2

S&P BSE Capital Good

17488 

18822 

17076 

-7.1 

2.4 

S&P BSE FMCG

11213 

11291 

10428 

-0.7 

7.5 

S&P BSE Health Care

14004 

13003 

14191 

7.7 

-1.3 

S&P BSE IT

13920 

13453 

9833 

3.5 

41.6 

S&P BSE METAL

13064 

13612 

11374 

-4.0 

14.9 

S&P BSE Oil & Gas

13660 

14429 

13203 

-5.3 

3.5 

S&P BSE Power Index

1947 

2129 

2226 

-8.6 

-12.5 

S&P BSE Realty

2073 

2235 

2043 

-7.2 

1.5 


The Macro Picture

  May-18 April-18
WPI 4.4% 3.2%
CPI 4.90% 4.6%
Index of Industrial Production 4.9% (for April 2018) 4.4% (for March 2018)
Repo rate 6.25% (as on June 30, 2018) 6.0% (as on April 30, 2018)
Marginal Standing Facility Rate 6.50% (as on June 30, 2018) 6.25% (as on April 30, 2018)
Source: RBI, MOSPI

Monetary Policy Committee (MPC)

The Reserve Bank of India (RBI) hiked the policy repo rate by 25bps in June, though, maintaining a neutral stance. The policy decision is seen as a reaction to the recent movement in crude prices, global financial volatility and movement of the rupee against the dollar. Significant increase in the recent RBI inflation expectations survey also lent support to the hike. The RBI has increased its 2HFY19 inflation forecast to 4.7% from 4.4% earlier. The 1HFY19 inflation forecast now ranges 4.6-4.7% as against 4.7-5.1% earlier.

Inflation

India’s Wholesale Price Inflation (WPI) Index rose to 4.4% for the month of May from 3.2% YoY in April as a fading favourable base and rise in fuel inflation pushed up the index higher. Fuel inflation rose to 11.2% during the month from 7.9% YoY.

Consumer Price Inflation (CPI) Index rose to ~4.9% YoY in May 2018 from 4.6% YoY in April with most major components registering higher inflation for the month.

Other macro developments

In the fiscal 2017-18, India’s external debt increased 12.4% YoY primary on account of increase in Commercial borrowings, short term debt and Non-resident Indian (NRI) deposits. India’s external debt to GDP stood at 20.5% in Mar-18 as compared to 20.0% as on Mar-17. The Central Government’s fiscal deficit in April-May 2018 reached ~55% of the budgeted target as compared to 63% for the same period in the previous year. Trade deficit increased to USD14.6bn in May 2018 from USD13.7bn in the previous month. Exports grew ~20.2% YoY while imports grew ~14.9% YoY.

Market Outlook

Equity markets moved sideways in the month of June driven by concerns on high crude oil prices, increasing noises around trade tariffs, weak currency and the Reserve Bank of India’s first rate hike in the past few years.

Consumption is expected to remain one of the key growth drivers. Urban consumption has been strong so far, driven by moderate 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. GST collections have continued to witness a pick up; crude oil prices and GST collections would continue to be key monitorables going forward.

In terms of our portfolio positioning, 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.

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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