Monthly Review (As on 30th June 2017)
Equity markets witnessed some consolidation in June. Lower economic activity ahead of the GST launch in July 2017 which could lead to softer quarterly results for some of the sectors and higher valuations relative to historical averages: these led to the markets taking a pause.
Bond prices rose in June, with bond yields falling 15 basis points due to sharply lower inflation data, lower crude oil prices & large buying by foreign institutional investors.
Economy
Macros continue to report an improvement though it may remain soft in 1H due to GST implementation and CPI inflation came off sharply.
Market Outlook
Equity Market
A significant indirect tax reform in the form of the Goods and Services Tax (GST) became effective on 1st July. With higher tax buoyancy and tax-to-GDP ratios over the next 2-3 years, and therefore higher Governmental spend on capex, as well as the initial signs of a revival in private sector capex being seen, the equity market outlook remains positive. With stable macros, and improving micros (corporate sector performance), the much delayed double digit growth in corporate profits during this period is expected, and this could support the higher valuations that we are currently witnessing, apart from the significant inflows into domestic funds.
Hence we remain constructive on equity markets with a two/three year+ time frame and see valuations sustaining above average multiples during this period. We intend utilizing any market correction (due to softer 1H earnings, geo-political events, etc.) to increase our weightage in equities; however we continue to add at current levels as well, on a stock-specific basis.
Monthly Review (As on 30th June 2017)
Equity markets witnessed some consolidation in June. Lower economic activity ahead of the GST launch in July 2017 which could lead to softer quarterly results for some of the sectors and higher valuations relative to historical averages: these led to the markets taking a pause.
Bond prices rose in June, with bond yields falling 15 basis points due to sharply lower inflation data, lower crude oil prices & large buying by foreign institutional investors.
Economy
Macros continue to report an improvement though it may remain soft in 1H due to GST implementation and CPI inflation came off sharply.
Market Outlook
Fixed Income Market
Lower global commodity prices and favorable base should be supportive of lower inflation data going forward. While RBI did not change its stance, its tone was noticeably softer and therefore the fixed income markets rallied, as there is a possibility of a cut in interest rates later during this year. GST would possibly lower inflation in the longer-term, though it is difficult to assess the shorter-term impact. IMD’s monsoon forecast was revised to 98% of the long period average with good spatial distribution. Based on these, RBI’s recent policy statement and favorable global environment we remain biased towards a higher duration portfolio. Further policy measures would be extremely data dependent, and we would continue to closely monitor the same.