Monthly Review (As on 30th June 2018)
Equity Market
Monthly Review
The Nifty-50 ended flat for the second consecutive month of June, but the pain in the broader market continued. While Nifty has rallied over 6% for the quarter ended June, 2018, the Nifty Midcap-100 Index corrected over 3% during the same quarter, a divergence of 9%. This is reflective of a “risk-off” sentiment among investors, concerned with rising crude prices, interest rates, a depreciating Rupee, global trade wars and an uncertainty in terms of political continuity in the next Lok Sabha elections. Foreign institutions continue to remain net sellers to the tune of US$630 mn worth equities during the month; domestic institutions bought US$2.1 bn worth of equities. For the quarter FII have sold over $3bn worth of equities, whereas domestic institutions have bought worth $5.6 bn of equities.
The month of June saw a continuing fall in bond prices, leading to a rise in bond yields. RBI hiked policy rates by 25bps to 6.25% after 4 years; higher fuel prices, rising inflation and large selling in bonds by foreign institutions, resulted in this fall in prices. Consumer inflation continued to be on the rise, moving to 4.9% from 4.6% in May. The 10-year Government Security yield rose by 7 bps to 7.90%. The spreads of corporate bonds over the 10 year G-Sec fell from 59 bps to 54 bps due to lack of supply.
Outlook for Markets
Equity Market
Rising crude oil prices and a depreciating Rupee, rising inflation and interest rates, along with a moderation in Government infrastructure, have contributed to a reduction in earnings estimates as well as valuation multiples for many of the sectors. This is reflected in the fall in the broad market even as the Nifty-50 remained resilient due to the performance of a few index heavyweights. On the positive side, we are seeing a revival in consumption driven by rural demand. Another relief could be on the NPA front, which, finally could have peaked, and with favorable resolutions of large NPAs having commenced. Globally too, rising interest rates and trade tariffs proposed by US with counter-tariffs announced by others, is leading to some uncertainty.
Going forward, markets will keenly watch the trends in crude oil prices and the trade tensions, their impact on our economy and our currency, and more importantly, on corporate earnings and political developments over the next few quarters. While we have seen a significant value correction in most of the midcap stocks, we could see a revival in only a select few names, with a focus on quality and good earnings visibility.
Our tactical stance has changed from overweight equities to neutral equities in our hybrid funds.
Monthly Review (As on 30th June 2018)
The Nifty-50 ended flat for the second consecutive month of June, but the pain in the broader market continued. While Nifty has rallied over 6% for the quarter ended June, 2018, the Nifty Midcap-100 Index corrected over 3% during the same quarter, a divergence of 9%. This is reflective of a “risk-off” sentiment among investors, concerned with rising crude prices, interest rates, a depreciating Rupee, global trade wars and an uncertainty in terms of political continuity in the next Lok Sabha elections. Foreign institutions continue to remain net sellers to the tune of US$630 mn worth equities during the month; domestic institutions bought US$2.1 bn worth of equities. For the quarter FII have sold over $3bn worth of equities, whereas domestic institutions have bought worth $5.6 bn of equities.
The month of June saw a continuing fall in bond prices, leading to a rise in bond yields. RBI hiked policy rates by 25bps to 6.25% after 4 years; higher fuel prices, rising inflation and large selling in bonds by foreign institutions, resulted in this fall in prices. Consumer inflation continued to be on the rise, moving to 4.9% from 4.6% in May. The 10-year Government Security yield rose by 7 bps to 7.90%. The spreads of corporate bonds over the 10 year G-Sec fell from 59 bps to 54 bps due to lack of supply.
Outlook for Markets
Fixed Income Market
India’s manufacturing PMI recovered from 51.2 in May to 53.1 in June, led by robust domestic and external demand. GST collections were robust in May & June, around INR 95000 cr. Consumer Price Inflation (CPI) rose to 4.9% y-o-y in May from 4.6% in April, higher than expected, driven by all three components – food, fuel and core inflation. Core inflation (CPI ex-food & beverages and ex- fuel) rose further to 6.3% YOY in May from 6.1% in April. FIIs sold INR 11000 crore of debt securities. The Indian Rupee depreciated from Rs 67.4 in May to Rs 68.5 in June on a higher import burden due to rising crude prices, Fund outflows in equities and debt, and a higher current account deficit.
The June policy minutes suggest the Monetary Policy Committee remains ‘data-dependent’ and does not see the rate hike in June as the start of a tightening cycle. After a period of extreme volatility, the Government bond market remained range-bound for the month. Higher inflation data and global uncertainty might keep the bond market nervous for some more time. We remain cautious on the overall portfolio positioning, but look to capture tactically on the liquid portion of the curve.
