Equity Perspective November 2017
Equity Markets - Review
Equity Roundup Movement in October U.S Closing Price 1-Month Return (%) Year To Date Returns (%) S&P 500 2575.26 2.22 15.03 Nasdaq 6727.67 3.57 24.98 Dow Jones 23377.24 4.34 18.29 Europe DAX 13229.57 3.12 15.23 FTSE 100 7493.08 1.63 4.90 Asia/Pacific Nikkei 22011.67 8.13 15.16 KOSPI 2523.43 5.39 24.52 Hang Seng 28245.54 2.51 28.39 Domestic Sensex 33213.13 6.17 24.74 Nifty 10335.30 5.59 26.26 BSE Mid cap 16587.98 7.46 37.87 BSE Small cap 17600.49 9.23 46.11 BSE 100 10776.46 5.94 28.49 BSE 200 4541.26 6.08 29.34 Data as on 31st Oct 17
Equity Roundup - Sectoral Performance 16% 14.7% 14% 13.0% 12% 11.4% 11.5% 10% 8.6% 8% 6% 4% 4.2% 4.7% 5.0% 5.1% 5.2% 5.9% 6.5% 7.3% 2% IT Bankex FMCG Auto Cosumer Durables Healthcare Power CG Metal Realty Oil & Gas PSU Energy *S&P BSE Sectoral Indices movement between 30th Sep 17 to 31st Oct 17
Equity Roundup Key Takeaways October witnessed a mega announcement by the government regarding public sector bank (PSB) recapitalization and stepped up spending over road networking. The government announced a Rs. 2.11 lakh crore PSB recapitalization plan, of which, Rs.1.35 lakh crore is expected via recapitalization bonds. This will help accelerate the non-performing loan resolution process, and in turn improve visibility for the expected capex cycle recovery. However, the downside is that this will increase the central government s debt-to-gdp ratio Indian equity markets ended the month of October on a positive note. The equity markets gained on back of better-than-expected earnings reported by companies and better economic data amid relaxation in GST provisions and public sector bank recapitalisation move; pushed markets to fresh record highs during the month. All an all, Sensex surged by 6.2%, while Nifty gained 5.6% during the period (30th Sep 17 to 31st Oct 17). Broader indices outperformed both - Sensex and Nifty. BSE Mid Cap rose 7.5%; while BSE Small Cap gained 9.2% during the same period. On the BSE sectoral front, all the indices ended in green. Energy was the major gainer followed by PSU and Oil & Gas. Buying interest was seen in the capital goods counter following the government s announcement of a Rs. 6.9 lakh crore program to spur infrastructure sector. Bankex gained amid announcement of a mega recapitalisation package for banks.
3-Oct 4-Oct 5-Oct 6-Oct 7-Oct 8-Oct 9-Oct 10-Oct 11-Oct 12-Oct 13-Oct 14-Oct 15-Oct 16-Oct 17-Oct 18-Oct 19-Oct 20-Oct 21-Oct 22-Oct 23-Oct 24-Oct 25-Oct 26-Oct 27-Oct 28-Oct 29-Oct 30-Oct 31-Oct 34,000 33,500 33,000 Equity Roundup Events Timeline steady CPI rate for Sep 17 amid strong IIP numbers for Aug 17 and the GST Council offering relief to exporters and small and medium businesses by way of easing rules boosted market sentiment. Markets cheered the finance minister s announcement of a mega recapitalisation package for banks and a massive road infrastructure investment of nearly Rs. 7 lakh crore over the next five years. Better than expected earnings of a few prominent domestic companies for the quarter ended Sep 2017 supported buying interest 32,500 RBI Governor lowered the Gross Value Added growth target for the current financial year to 6.70% from 7.30% earlier. 32,000 31,500 Mixed series of corporate earnings numbers across different industries amid profit booking; led to fall in equity markets 31,000
Rs. Billion Equity Roundup FII Net Flows 450 350 337.8 250 150 50 1.0 104.9 77.1 36.2 51.6 30.6 (50) (150) (250) (22.1) (49.9) (84.9) (114.0) (142.9) (177.4) Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 FIIs turned buyers of equities in October after two consecutive months of significant outflows; they bought equities to the tune of Rs. 30.6bn. While, MFs continued to remain huge buyers of equities; they bought equities worth Rs. 99.9bn during the month. Improved earnings and economic data, relaxation in GST provisions and public sector banks recapitalization move; supported the FII flows during the month.
Indian Economy - Review
Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 India's IIP growth decline to 3.8% in September; October CPI inflation hits seven-month high of 3.58% WPI inflation at 6-month high at 3.59% in October on the back of rising vegetable prices; CPI rises to 3.58% mainly driven by higher prices of housing, fuel, pan, tobacco and intoxicants WPI CPI 8% 6% 4% 2% 5.3% 4.2% 3.4% 3.6% 3.2% 3.4% 3.4% 3.2% 6.6% 3.7% 5.7% 3.9% 3.0% 2.3% 2.2% 1.5% 0.9% 2.4% 1.9% 3.4% 3.3% 3.2% 2.6% 3.6% 3.6% 0% September IIP shows a slowing at 3.8% growth; India's Manufacturing PMI falls to 50.3 in October 10% 5% 0% -5% 2.10% 0.8% 7.30% 1.76% 0.57% -1.7% 0.70% -2.40% -0.70% -1.90% 5.70% 3.9 1.02% -0.10% IIP 3.30% -1.4% PMI 3.75% -0.8% 0.2% -1.20% 4.00% 3.10% 4.70% 1.70% -0.10% -7.4% 4.50% 1.12% 3.80% -1.2% -2.7% -1.7% -10% Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17
RBI Keeps Repo Rate Unchanged, Lowers Growth Projections 8.5 CRR % Repo % Rev Repo % SLR %(RHS) 23.0 7.5 22.0 6.5 21.0 5.5 20.0 4.5 19.0 3.5 18.0 Aug-14 Dec-14 Apr-15 Jul-15 Nov-15 Mar-16 Jul-16 Oct-16 Feb-17 Jun-17 Oct-17 The six-member Monetary Policy Committee (MPC) of Reserve Bank of India, headed by Governor Urjit Patel kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0 per cent. The committee also did not tweak the cash reserve ratio (CRR), which remained unchanged at 4 per cent, but cut statutory liquidity ratio (SLR) requirement by 50 basis points to 19.5 per cent. The central bank maintained its neutral policy stance but acknowledged that the disruptions from goods and services tax (GST) have worsened the broader economy s prospects in the short term. The RBI sharply revised the economy s growth forecasts for 2017-18. The central bank expects the gross value added (GVA) to grow at 6.7 percent in 2017-18 from 7.3 percent projected earlier. The monetary policy panel listed several upside risks to inflation such as farm loan waivers, states implementation of pay commission allowances, and price revisions following GST and rising international crude prices. The RBI expects retail inflation to range between 4.2-4.6% in the second half of fiscal year 2017-18.
Equity Markets - Outlook
Benchmark indices post good gains on back of on Government boost of capital spend Improved earnings and economic data, relaxation in GST provisions and public sector banks recapitalization move helped Nifty to deliver 5.6% returns during the month, making India the best-performing market among the emerging economies. On the data front, The country's industrial output, as measured by the Index of Industrial Production (IIP) slipped to 3.8% in September, compared with 4.5% the previous month. India s wholesale inflation accelerated to a six-month high of 3.59% in October, from 2.6% a month ago, on the back of rising vegetable prices. The Consumer Price Index (CPI) for October accelerated to a seven-month high of 3.58% from a year ago, mainly driven by higher prices of housing, fuel, pan, tobacco and intoxicants, after going down in the previous month. In September, the CPI inflation was 3.28%.While the retain inflation has risen, the core inflation has gone down from 4.6% in September to 4.5% in October. The rise in retail inflation is on the back of high food inflation, rural and urban inflation. Policy reforms and robust liquidity have supported the market, however due to some of the key state elections in December, one can expect political underpinnings to play a role from the headline perspectives. Thus, accordingly, while we continue to remain overweight on equities as an asset class, given the recent rally we may witness volatility and accordingly it would be prudent to cut down on returns expectations. Profit booking can be undertaken at higher levels 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.
Investment strategy Near to short term India s fiscal situation, credit offtake, pace of NPL resolutions and monetary policy outlook would be the key data points to monitor in the near term. Near term triggers can come from geo-political news flows on North Korea and US, release of key global macroeconomic data points and change in monetary policy stance. While India remains attractive investment destination owing to its fundamental positives, geopolitical concerns, hike in US interest rates and monetary policies worldwide could keep the fund flows volatile in the near to medium term. While we advise profit booking at higher levels, 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. We believe, with interest rates and inflation likely to come down in the long term, India s economic cycle is likely to turn positive. Also, after recent correction, current valuations offer attractive investment opportunity wherein investors could benefit from an upward re-rating of valuations in the future. Aggressive investors can enter at current levels and can hedge the portfolio for the correction. 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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