Equity Perspective. March 2018

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1 Equity Perspective March 2018

2 Equity Markets - Review

Equity Roundup Movement in February U.S Closing Price 1-Month Return (%) Year To Date Returns (%) S&P 500 2713.83-3.89 1.

93 Asia/Pacific Nikkei 22068.24-4.46-3.06 KOSPI 2427.36-5.42-5.42 Hang Seng 30844.72-6.21 3.09 Domestic Sensex 34184.04-4.95 0.

3 Equity Roundup Movement in February U.S Closing Price 1-Month Return (%) Year To Date Returns (%) S&P Nasdaq Dow Jones Europe DAX FTSE Asia/Pacific Nikkei KOSPI Hang Seng Domestic Sensex Nifty BSE Mid cap BSE Small cap BSE BSE Data as on 28th Feb 18

4 Equity Roundup - Sectoral Performance 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% Bankex PSU CG CD Realty Oil & Gas AUTO Power Index -4.3% -4.2% HC -3.1% Energy -2.8% FMCG -1.9% METAL -1.6% IT -0.4% -6.0% -7.0% -6.3% -5.7% -5.4% -5.3% -8.0% -9.0% -8.6% -8.6% -10.0% *S&P BSE Sectoral Indices movement between 31st Jan 18 to 28th Feb 18

5 Equity Roundup Key Takeaways Equity markets saw correction in February eventually caused by two events first, the Budget 2018 where government imposed 10% long term capital gains tax on equity and 10% dividend distribution tax on equity oriented MF, and raised fiscal deficit target; and second global developments where expectations increased for a faster hike in US interest rates (more than three) and rise in U.S. bond yields impacted the equity markets. Rebound in the global crude oil prices also impacted the market. More losses were seen after the PSU bank - PNB reported fraud of Rs. 12,700 cr. Further, depreciating rupee and huge selling by the FIIs also acted as a dampener. For the month of February, Sensex and Nifty lost 5% each; while BSE Midcap index fell 4.6% and BSE Smallcap index fell by 3.1%. On the sector front, the biggest loser was the PSU and Banking index, which lost around 9% each after the PNB bank fraud came to light. Heavy selling pressure was witnessed in capital goods, consumer durables and realty shares. Oil marketing companies were under pressure owing to strengthening of crude oil prices. Oil and Gas index lost 5.3%.

6 1-Feb 2-Feb 3-Feb 4-Feb 5-Feb 6-Feb 7-Feb 8-Feb 9-Feb 10-Feb 11-Feb 12-Feb 13-Feb 14-Feb 15-Feb 16-Feb 17-Feb 18-Feb 19-Feb 20-Feb 21-Feb 22-Feb 23-Feb 24-Feb 25-Feb 26-Feb 27-Feb 28-Feb Equity Roundup Events Timeline 36,000 35,500 35,000 34,500 34,000 Introduction of LTCG tax on equities Govt kept FY2018 GDP target at 3.2% in the Union Budget Sentiment got dampened after sell-off in US markets was witnessed on back of rising bond yields RBI raised inflation target Punjab National bank reported Rs. 115bn fraudulent transactions Worsening Trade deficit and rising crude oil prices resulted in market fall India s strong GDP data for third quarter of FY 18 and upbeat eight core industries data for Jan 2018; led some support to the market 33,500

7 (142.9) (113.9) (110.4) (10.1) (22.1) (58.8) Equity Roundup FII and MF Net Flows FII Invst Monthly (Rs bn) MF Invst Monthly (Rs bn) Jan'17 Feb'17 Mar'17 Apr'17 May'17 Jun'17 Jul'17 Aug'17 Sep'17 Oct'17 Nov'17 Dec'17 Jan'18 Feb' A trend reversal was seen in Feb18, where FIIs became huge sellers of Indian equities and sold worth Rs bn after being net buyers in the previous month. Mutual Funds continued to remain heavy buyers with net inflows of Rs bn in Feb18. Equity markets saw huge correction in February eventually caused by two events first, the Budget 2018 where government imposed 10% long term capital gains tax on equity and 10% dividend distribution tax on equity oriented MF, and raised fiscal deficit target; and second global developments where expectations increased for a faster hike in US interest rates (more than three) and rise in U.S. bond yields impacted the equity markets; were negative points during the month of February which dampened the FII flows during the month.

8 Indian Economy - Review

9 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Feb retail inflation eases to 4-month low of 4.44%, IIP grows 7.5% in Jan Wholesale inflation eases to 7-month low of 2.48% in February; Retail inflation at 4-mth low of 4.44% on cheaper food, fuel WPI CPI 8% 6% 4% 2% 6.6% 5.7% 3.7% 3.9% 3.9% 3.0% 2.2% 2.3% 1.5% 0.9% 1.9% 3.4% 3.2% 3.3% 3.6% 2.6% 4.9% 3.9% 5.2% 5.1% 3.6% 4.4% 2.8% 2.5% 0% IIP rises to 7.5% in January, Nikkei India manufacturing PMI falls to 52.4 in January 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% 7.30% 5.70% 3.98% 3.30% 1.02% -0.10% -1.90% -1.4% -0.8% -1.20% 4.00% IIP 4.70% 3.10% 1.70% 0.2% 10.30% 4.50% 8.40% 7.10% 7.50% 4.00% 3.80% 2.20% -0.10% 0.90% 0.60% -1.20% -1.70% -2.70% -7.4% -7.50% Jan-18 Dec-17 Nov-17 Oct-17 Sep-17 Aug-17 Jul-17 Jun-17 May-17 Apr-17 Mar-17 Feb-17 Jan-17 Dec-16 Nov-16 Oct-16 PMI

10 RBI Leaves Interest Rate Unchanged, Raises Inflation Forecast CRR % Repo % Rev Repo % SLR %(RHS) May-15 Aug-15 Dec-15 Apr-16 Aug-16 Nov-16 Mar-17 Jul-17 Nov-17 Mar The six-member Monetary Policy Committee (MPC) of Reserve Bank of India, headed by Governor Urjit Patel; as widely expected kept repo rate unchanged at 6.0 per cent in its sixth bimonthly monetary policy meeting of FY18; citied concerns about the inflationary push by rising global crude oil prices. Consequently, MSF (Marginal Standing Facility Rate) and Bank rate remained unchanged at 6.25% each. Five on the six-member monetary policy committee voted for the decision, with one seeking a hike. The RBI raised its March quarter CPI inflation forecast to 5.1% and projected an inflation range of % in the first half of the next fiscal year. However, RBI posits a revival in growth projecting an acceleration in economic growth to 7.2% from a level of 6.6% in the current fiscal year. It premises this on a host of factors including revival in investment demand and strengthening exports. Thus, in this policy while striking the balance between inflation and growth, RBI has given priority to growth at this juncture, which will now calm sentiments of an otherwise nervous markets.

11 Equity Markets - Outlook

12 Key Events February 2018 India s 3Q GDP rebounded to 7.2% as negative supply shocks on account of the demonetization and GST seem to be fading away. Investment growth surged to double digits from 8.9% last quarter to 13% in 3Q in line with what we have been seeing with some high frequency indicators. RBI kept its policy rates unchanged in line with street expectations however inflation forecasts were pushed up and growth forecasts pared down indicating likely difficult policy challenges going forward. India s Wholesale Price Index-based inflation (WPI) slowed to a seven-month low of 2.48% in Feb 2018 from 2.84% in the previous month and 5.51%in the same month of the previous year. Wholesale inflation grew at a slower pace due to softer rise in food and fuel prices. The WPI Food Index also decreased from 1.65% in Jan2018 to 0.07% in Feb On the other hand, the Consumer Price Index (CPI) based inflation or retail inflation grew 4.44% in Feb 2018,down from 5.07% in the previous month and up from 3.65% in the same month of the previous year. Though retail inflation growth subdued, it surpassed Reserve Bank of India s medium-term target of 4% for the fourth consecutive month. The Consumer Food Price Index also grew 3.26% in Feb 2018, down from 4.70% in the previous month and up from 2.01% in the same month of the previous year India s Index of Industrial Production (IIP) grew 7.5% in Jan 2018 as against growth of7.1% in Dec 2017 and 3.5% in the same period of the previous year. The manufacturing sector also surged 8.7% in Jan 2018 from 2.5% growth in the same period of the previous year. However, IIP growth for Apr to Jan 2018 slowed to 4.1% from 5.0% in the same period of the previous fiscal. Indian equities (-4.9%) gave up all the gains from the early part of the year in the month of Feb with the heightened global volatility weighing on sentiment and FIIs turning large net sellers. The introduction of LTCG in the budget and the unraveling of the massive Rs. 115bn scam involving PNB and heightened global volatility were also viewed as a dampener by market participants.

13 Investment strategy Near to short term Near term triggers can come from forthcoming corporate earnings along with global risks emanating from geopolitical tensions and volatile crude oil prices, and domestic risks like state election results and any shortfall in monsoon could pose downside risks to the market. Thus, accordingly, looking at the current market juncture, it s very important that investors maintain their asset allocation by taking adequate exposure into debt schemes also. Investors intending to take pure equity exposure are advised to invest in large-cap oriented funds which are trading at discount compared to mid & small cap stocks which are still overvalued. Moreover, we would also suggest that new investors should use this correction as an entry opportunity, as we believe longterm fundamentals of the economy remains intact and we suggest long term investors to enter equities in a staggered manner and can also go through the SIP route. Conservative investors can park the funds in liquid scheme and enter through STP. Medium to long term Faster reforms implementation by the government to boost the manufacturing & industrial growth could drive the economic revival in the medium term. While, India remains attractive investment destination owing to its fundamental positives; however, the biggest areas of concerns would be worsening macros, delay in resumption of GDP growth, sustained rise in interest rates in developed economies and geopolitical concerns could keep the markets volatile in the medium term. Aggressive investors can enter at current levels via STP mode. A conservative investor can enter the market by investing in liquid or debt funds currently and then transferring the portfolio at sharp movements.

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Equity Perspective. February 2018

Equity Perspective. February 2018 Equity Perspective February 2018 Equity Markets - Review Equity Roundup Movement in January U.S Closing Price 1-Month Return (%) Year To Date Returns (%) S&P 500 2823.81 5.62 5.62 Nasdaq 7411.48 7.36 7.36