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Market Commentary

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Equity Market

Equity Commentary – January 2019

The Indian equity markets were flat for the month of January 2019 with the Sensex up by 0.5%, and the Nifty down by -0.3%. The broader market; the BSE Midcap & the BSE 200 both underperformed the Sensex with a performance of -5.7% and -1.4% respectively. In terms of sectors; Banks, Consumer Durables and IT were the major outperformers whilst all other sectors underperformed the BSE Sensex. FIIs were net sellers in January, with net outflows to the tune of ~USD -750.4 mn. Net equity investments in January by domestic MFs in the market were ~USD 1 bn.

Index Name As on As on As on Return in %
31-Jan-19 31-Dec-18
31-Jan-18  1 Month 1 Year

Nifty 50 Index

10831 

10863 

11028 

-0.3 

-1.8 

S&P BSE Sensex

36257

36068 

35965 

0.5 

0.8 

S&P BSE MID CAP

14560 

15438 

17364 

-5.7 

-16.1 

S&P BSE SMALL CAP

13926 

14707 

18717 

-5.3 

-25.6 

S&P BSE 200

4588 

4654 

4812 

-1.4 

-4.7 

S&P BSE AUTO

18495 

20834 

25945 

-11.2

-28.7 

S&P BSE Bankex

30731 

30377 

30986 

1.2 

-0.8 

S&P BSE Consumer Durable

21256

20695 

22477 

2.7 

-5.4 

S&P BSE Capital Good

17311 

18821 

20364 

-8.0 

-15.0 

S&P BSE FMCG

11616 

11829 

10711 

-1.8 

8.4 

S&P BSE Health Care

13881 

13923 

14559 

-0.3 

-4.7 

S&P BSE IT

15264 

14090 

12557 

8.3 

21.6 

S&P BSE METAL

10959 

11840 

15427 

-7.4 

-29.0 

S&P BSE Oil & Gas

13612 

13749 

16368 

-1.0 

-16.8 

S&P BSE Power Index

1881 

1999 

2319 

-5.9 

-18.9 

S&P BSE Realty

1774 

1798 

2609 

-1.3 

-32.0 



Index Name As on As on As on Return in %
31-Jan-19 31-Dec-18
31-Jan-18  1 Month 1 Year

Nifty 200

5666 

5755

5979 

-1.5 

-5.2 

Nifty 50

10831 

10863 

11028 

-0.3 

-1.8 

Nifty Auto

8218 

9236 

11612 

-11.0 

-29.2 

Nifty Bank

27295 

27160 

27379 

0.5 

-0.3 

Nifty Commodities

3267 

3431 

4106 

-4.8 

-20.4 

Nifty Energy

14479 

14335 

14454 

1.0 

0.2 

Nifty Financial Services

11456 

11586 

11262 

-1.1 

1.7 

Nifty FMCG

29801 

30517 

27127 

-2.3 

9.9 

Nifty India Consumption

4716

4989 

4986 

-5.5 

-5.4 

Nifty Infrastructure

2977 

3175 

3620 

-6.2 

-17.8 

Nifty IT

15499 

14440 

12986 

7.3 

19.4 

Nifty Metal

2916 

3155 

4066 

-7.6 

-28.3 

Nifty Midcap 100

16905 

17876 

20785 

-5.4 

-18.7 

Nifty Pharma

8825 

8869 

9385 

-0.5 

-6.0 

Nifty Realty

229 

232 

345 

-1.6 

-33.7 

Nifty Smallcap 100

6133 

6449 

8817 

-4.9 

-30.4 


The Macro Picture

  January - 19 December - 18
WPI 3.8% (December 2018) 4.64% (November 2018)
CPI 2.19% (December 2018) 2.33% (November 2018)
Index of Industrial Production 0.48% (November 2018) 8.1% (October 2018)
Repo rate 6.50% (as on December 31, 2018)  6.50% (as on December 31, 2018)  
Marginal Standing Facility Rate 6.75% (as on December 31, 2018)   6.75% (as on December 31, 2018)  
Source: RBI, MOSPI

Inflation

India’s Wholesale Price Inflation (WPI) Index came in at 3.8% YoY in December 2018 as compared to 4.64% for November 2018 on account of moderation in food inflation.
The Consumer Price Inflation (CPI) index came at 2.19% YoY in December as compared to 2.33% 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 as per revised estimates for FY19 is likely to be 3.4% against the earlier budgeted 3.3%, a marginal increase – a decent performance by the government given the headwinds it faced on lower GST tax collections. The budgeted number for FY20 also stands at 3.4% including the new income supplement scheme for marginal farmers to the tune of approximately US$70bn.

Market Outlook

Equity markets displayed divergent views during January 2019 with BSE Sensex being flat however the mid cap and small cap segment of the market corrected sharply. Q3FY19 earnings season has been encouraging with corporate India delivery healthy double digit EBIDTA growth. However, liquidity tightness continues in the fixed income market with added concern on impact of promoter leverage of the Essel group along with a few housing finance companies specially Dewan Housing Finance. 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. FY20 budget has more of the same with the government promising Rs 6000 per annum income support scheme for marginal farmers totaling to approximately US$70 bn annual spend. 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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