The Indian equity markets ended higher in the month of March 2017, as both Sensex and Nifty were up by 3.1% and 3.3% respectively. The broader market outperformed the Sensex, as reflected by the performance of the BSE Midcap and BSE 200 index at 4% and 3.4% respectively. In terms of sectors; Consumer durables, Capital Goods Realty and FMCG were outperformers whilst Metals, Healthcare, IT and Oil and Gas were the major underperformers. FII flows continued to be positive in March, with net inflows to the tune of ~USD 4.75 bn. Consequently, FIIs net inflows in CYTD amounts to ~USD 6.06 bn. This is almost double the inflows of the entire CY16 which were ~USD 3.17bn. Domestic MFs witnessed net inflows of ~USD 360 mn. during the month.
|Index Name ||As on ||As on ||As on ||Return in % |
|31-Mar-17 ||28-Feb-17 ||31-Mar-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
| ||February-17 ||January-17 |
|Index of Industrial Production
||2.7% (for January 2017)
||-0.1% (for December 2016) *
||6.25% (as on March 31, 2017)
||6.25% (as on February 28, 2017)
|Marginal Standing Facility Rate
||6.75% (as on March 31, 2017) **
||6.75% (as on February 28, 2017)
The Index of Industrial Production (IIP) rose 2.7% YoY in January 2017, relative to the 0.1% YoY decline in December 2016 led by the performance of capital goods and consumer durables. Capital goods production increased 10.7% YoY in January 2017 after a contraction of 3.9% in December 2016 while consumer durables picked up 2.9% YoY as compared to a contraction of 8.9% YoY in the previous month.
Consumer Price Inflation (CPI) index increased to 3.7% YoY in February 2017 compared to 3.2% YoY in January 2017. The pickup in the CPI inflation in February 2017 was led by an increase in the inflation for food & beverages and fuel & light, while the inflation for pan, tobacco & intoxicants, clothing & footwear and housing moderated.
Wholesale Price Inflation (WPI) index rose to 6.5% YoY in February 2017 from 5.2% YoY in January 2017, driven by the rise in inflation for minerals, fuel & power and non-food articles. Food inflation increased to 2.7% YoY in February from -0.6% in January while fuel inflation came in at 21% YoY compared to 18.1% YoY in January driven by increase in international oil prices.
In its monetary policy review meeting held on April 6th 2017, the Reserve Bank of India (RBI) kept the repo rate unchanged at 6.25%. The RBI, however, narrowed the policy corridor from 50bps either side of the repo rate to 25bps. Accordingly, the reverse repo rate stands at 6.0% (5.75% earlier) and the rate under the marginal standing facility stands at 6.5% (6.75% earlier). RBI has kept its growth estimate for FY18 unchanged at 7.4% (Gross Value Added basis) while it has increased its inflation projection to 4.75% for the full year from 4.5% in the previous policy meeting.
Other macro developments
India’s trade deficit narrowed to US$8.9bn in February 2017 as compared to US$9.84bn in January 2017 even as imports growth outpaced exports growth. Fiscal deficit growth decelerated to 2% YoY in February 2017 from 42.7% YoY in January. The deceleration reflected a higher increase in total receipts and slowing expenditure growth. The increase in receipts was largely supported by increase in non-tax revenues. On the expenditure front, revenue spending decelerated while capital spending picked up pace. On a 12-month trailing-sum basis, the fiscal deficit edged down to 3.7% of GDP in February from 3.8% of GDP as of January. Foreign currency reserves stood at ~USD 367 bn as on March 24, 2017 as compared to ~USD 362 bn towards the end of January 2017.
March continued to be a good month for Indian equity markets. The magnitude of the win in India’s largest state Uttar Pradesh (population of more than 200 mn.) by the ruling party at the centre and dovish comments from the Fed Chair (despite a rate hike) positively surprised the markets and buoyed sentiments. This resulted in continued flows from both domestic and foreign institutional investors.
In terms of valuations, at current levels the markets are marginally above their long-term averages. However, considering progress on reforms like GST, expectations on earnings recovery and continued strong flows both from domestic and foreign investors, valuations may continue to remain above their long-term averages in the foreseeable future.
Although, in the near term, reversal of FII flows due to global events would continue to remain a risk to watch out for. However, it is important to note that India is much better placed to handle such an event given its healthy macro-economic parameters.
In terms of our portfolio positioning, we continue to remain overweight on direct and indirect beneficiaries of government push on sectors like roads, railways, defence and affordable housing. We continue to remain overweight on select private sector banks on account of their ability to maintain relatively higher growth rates.
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.