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Equity Market

Equity Commentary – March 2018

The Indian equity markets ended lower in the month of March 2018, as both Sensex and Nifty were down by 3.6% respectively. The broader market; the BSE Midcap & the BSE 200 both performed in line with the Sensex with a performance of -3.6% and -3.5% respectively. In terms of sectors; Auto, Consumer Durables, Capital Goods, FMCG, and IT were the major outperformers whilst Banking, Healthcare, Metals, Oil & Gas, Power and Realty were the major underperformers. FIIs were net buyers in March, with net inflows to the tune of ~USD 1.8 bn. Consequently, the net FII flows CYTD have been ~ USD 2.2 bn. Net equity investments in March 2018 by domestic MFs in the market were ~USD 1.16 bn.

Index Name As on As on As on Return in %
28-Mar-18 28-Feb-18 31-Mar-17 1 Month 1 Year
Nifty 50 Index 10114 10493 9174 -3.6 10.2
S&P BSE Sensex 32969 34184 29621 -3.6 11.3
16563 14097 -3.6 13.2
S&P BSE SMALL CAP 16994 18128 14434 -6.3 17.7
S&P BSE 200 4433 4592 3992 -3.5 11.0
S&P BSE AUTO 24057 24832 22013 -3.1 9.3
S&P BSE Bankex 27198 28314 24421 -3.9 11.4
S&P BSE Consumer Durable 22262 21187 15257 5.1 45.9
S&P BSE Capital Good 18477 19076 16446 -3.1 12.3
S&P BSE FMCG 10290 10506 9270 -2.1 11.0
S&P BSE Health Care 13158 14113 15312 -6.8 -14.1
S&P BSE IT 12101 12506 10366 -3.2 16.7
S&P BSE METAL 13322 15174 11804 -12.2 12.9
S&P BSE Oil & Gas 14614 15506 13564 -5.7 7.7
S&P BSE Power Index 2126 2223 2274 -4.4 -6.5
S&P BSE Realty 2230 2468 1600 -9.7 39.4

The Macro Picture

  February 18 January 18
WPI 2.5% 2.8%
CPI 4.4% 5.1%
Index of Industrial Production 7.5% (for January 2018) 7.1% (for December 2017)
Repo rate 6.0% (as on Feb 28, 2018) 6.0% (as on Jan 31, 2018)
Marginal Standing Facility Rate 6.25% (as on Feb 28, 2018) 6.25% (as on Jan 31, 2018)
Source: RBI, MOSPI


The Index of Industrial Production (IIP) grew 7.5% YoY in January 2018 against 7.1% in December 2017. Manufacturing sector, which accounts for more than three-fourths of the index grew 8.7% YoY in January’18 as compared with 8.5% in December’17, led by an improved production of consumer durables and continued growth of consumer non-durables (~10.5% YoY) as well as capital goods (~14.6% YoY).


India’s Wholesale Price Inflation (WPI) Index moderated to 2.5% YoY in February 2018 from 2.8% YoY in January 2018 with food inflation falling to 0.9% YoY from 3% YoY in the previous month.

Consumer Price Inflation (CPI) index saw a similar trend – it softened to 4.4% YoY in February from 5.1% in January on sequential contraction in retail food prices (3.3% in Feb versus 4.7% in Jan 18).

Other macro developments

Current account deficit (CAD) for Q3FY18 widened to ~2.0% of GDP (USD13.5bn) versus 1.2% recorded in the Q2FY18. The widening in CAD is led by deterioration in trade balance, reflecting the impact of rising gold, oil & electronics imports. Among invisibles, while software exports growth remains flat at USD 18.6 bn, remittances have grown at 14%-15% Y-o-Y in the past two quarters.

The headline fiscal deficit narrowed marginally to 3.8% of GDP in February (on a 12-month trailing basis) from 3.9% of GDP in January. The April-February combined fiscal deficit is tracking at 120% of the revised estimate. In February 2017, the fiscal deficit was tracking at 3.7% of GDP (vs. target of 3.5%) and at 113% of the revised estimate.

Market Outlook

Equity markets continued to consolidate in the month of March driven by market concerns over a global trade war escalating, renewed concerns on asset quality in the banking system amid setbacks for the ruling party in India.

The government investment agenda continued to be on track with strong awards momentum by the National Highway Authority of India (NHAI) awarding ~7,400 KM roads (~70% YoY) worth Rs.1.22 tn. in FY18. This compares with the average award for the last five years by the NHAI of ~2,860 KM. NHAI had tendered over ~11,200 KM since the Bharatmala announcement, and it is expected that another ~3,000 KMs of projects are likely to be awarded in the near term.

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 monitorables 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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