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Market Commentary

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Equity Market

Equity Commentary – September 2018

The Indian equity markets saw negative returns, with the Sensex down by -6.3%, whilst the Nifty was down by -6.4%. The broader market; the BSE Midcap & the BSE 200 both underperformed the Sensex with a performance of -12.5% and -8.1% respectively. In terms of sectors; Healthcare, IT, Metals and Oil & Gas were the major outperformers whilst, Auto, Banking, Consumer Durable, FMCG, Capital Goods, Power and Realty were the major underperformers. FIIs were net sellers in September, with net outflows to the tune of ~-USD 1.5 bn. Consequently, there have been net FII outflows CYTD of ~-USD 1.7 bn. Net equity investments in September 2018 by domestic MFs in the market were ~USD 1.2 bn.

Index Name As on As on As on Return in %
28-Sep-18 31-Aug-18
29-Sep-17  1 Month 1 Year

Nifty 50 Index

10930 

11681

9789 

-6.4 

11.7 

S&P BSE Sensex

36227 

38645 

31284 

-6.3 

15.8 

S&P BSE MID CAP

14763 

16881 

15436 

-12.5 

-4.4 

S&P BSE SMALL CAP

14431 

17193 

16114 

-16.1 

-10.4 

S&P BSE 200

4632 

5041 

4281 

-8.1 

8.2 

S&P BSE AUTO

21477 

24716 

24180 

-13.1 

-11.2 

S&P BSE Bankex

27992 

31742 

27025 

-11.8 

3.6 

S&P BSE Consumer Durable

19134 

21696 

17555 

-11.8 

9.0

S&P BSE Capital Good

17109 

18997 

17172 

-9.9 

-0.4 

S&P BSE FMCG

11503 

12772 

9773 

-9.9 

17.7 

S&P BSE Health Care

15025 

15945 

13488 

-5.8 

11.4 

S&P BSE IT

15629 

15549 

9947 

0.5 

57.1 

S&P BSE METAL

13279 

13821 

13564 

-3.9 

-2.1 

S&P BSE Oil & Gas

14855 

15079 

14843 

-1.5 

0.1 

S&P BSE Power Index

1929 

2141 

2206 

-9.9 

-12.5 

S&P BSE Realty

1703 

2141 

2065 

-20.5 

-17.5 


The Macro Picture

  June-18 May-18
WPI 4.5% 5.1%
CPI 3.69% 4.2%
Index of Industrial Production 6.6%(for July 2018) 7.0%(for June 2018)
Repo rate 6.50% (as on September 30, 2018) 6.50% (as on August 31, 2018)
Marginal Standing Facility Rate 6.75% (as on September 30, 2018) 6.75% (as on August 31, 2018)
Source: RBI, MOSPI

Inflation

India’s Wholesale Price Inflation (WPI) Index came in at 4.5% YoY in August 2018 as compared to 5.1% for July 2018 driven by a favorable base and easing food inflation. Food inflation came in at 0.85% as against -2.2% YoY in July.

The Consumer Price Inflation (CPI) index eased to 3.69% YoY in August as compared to 4.2% in the previous month on softening food prices.

Growth

India’s Real Gross Domestic Product (GDP) grew at 8.2% YoY in Q1 FY19 exceeding 5.6% growth in Q1 FY18 and 7.7% in Q4 FY18. The Nominal GDP growth came in at 13.8% versus 10.9% in Q4FY18. Private consumption grew 8.6% YoY for the quarter (highest in six quarters). The gross fixed capital formation continued to grow in double digits (~10% YoY).

Other macro developments(fiscal deficit and household savings)

India’s fiscal deficit upto August 2018 is 94.7% of the budgeted estimates. Revenue expenditure has risen 11.6% YoY while capital expenditure has increased 20.6%. Total receipts and expenditure are up 8.7% and 12.7% respectively. India’s net Household financial savings improved to 7.2% in FY18 from 6.8% of the GDP in FY17.

Update on monsoon:

Indian monsoons are 9.4% lower than long period average till end of September. This, however, hasn’t affected sowing significantly; the total area sown till September 30, 2018 stood at ~105.2 million hectares, largely unchanged from the same period in the previous year.

Market Outlook

Equity markets corrected from fresh highs during the month of September 2018 on the back of concerns of liquidity tightness for the NBFC sector and high crude prices. Higher Crude prices, along with higher current account deficit is putting pressure on interest rates, liquidity and currency in the short term in India which needs to monitored going forward. However, 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.

The recently announced minimum support price (MSP) hikes on certain key agricultural commodities and further cut in GST rates on certain consumer categories (electronics, footwear, Paints etc) should boost consumption in both rural and urban respectively. While rising inflation is an impending risk, we expect demand to remain strong in light of the aforesaid recent government initiatives. We maintain our view of broad based consumption being a key growth driver

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. 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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