Monthly Review (As on 31st August 2018)
Equity Market review
Monthly Review
The Nifty-50 continued its rally with this index ending with gains of 3% in August. The rally became slightly more broad-based in August, compared to the trend in the past several months, partly aided by better-than-expected corporate results for the April-June 2018 quarter. On the economy front, real GDP growth accelerated to 8.2% in 1QFY19 compared to 7.7% in 4QFY18, though it could be partly attributed to the lower base in the similar quarter last year (the quarter preceding the implementation of GST). Foreign institutions were small buyers of US$ 131 mn worth equities during the month. Domestic institutions continued to be consistent buyers, investing in US$ 403 mn worth of equities.
Bond prices resumed their fall in August with the 10-year G-Sec yields rising by 18 bps to 7.95%. Rising fuel prices and a depreciating Rupee were some of the influencing factors. The spreads of corporate bonds over the 10 year G-Sec fell from 61 bps to 51 bps.
Outlook for Markets
Equity Market
The corporate earnings season ended on a positive note, with a majority of companies meeting/exceeding expectations across sectors, particularly strong volume growth in the consumer sector, better numbers from the IT and pharma sectors, and limited incremental shocks in asset quality in PSU banks and corporate-oriented private banks. However, with the Indian Rupee crossing the 70 mark vs the US Dollar and the deteriorating Current Account Deficit, concerns continue on inflation and the fiscal deficit.
While the Nifty-50 has scaled a new high, the broad market is considerably below previous highs, though there has been some improvement in August. We believe markets will keenly watch sustainability of corporate earnings. Domestic retail inflows in equity mutual funds have slowed, and also need to be watched. The rally has been narrow, and driven by considerations of growth even at sharply elevated valuations for some of the large-cap heavyweights, and this is a matter of concern. Midcap stocks with a good earnings visibility could also eventually witness buying interest at reasonable valuations.
We continue to be neutral weight in equities in our hybrid funds.
Monthly Review (As on 31st August 2018)
Debt Market review
Monthly Review
The Nifty-50 continued its rally with this index ending with gains of 3% in August. The rally became slightly more broad-based in August, compared to the trend in the past several months, partly aided by better-than-expected corporate results for the April-June 2018 quarter. On the economy front, real GDP growth accelerated to 8.2% in 1QFY19 compared to 7.7% in 4QFY18, though it could be partly attributed to the lower base in the similar quarter last year (the quarter preceding the implementation of GST). Foreign institutions were small buyers of US$ 131 mn worth equities during the month. Domestic institutions continued to be consistent buyers, investing in US$ 403 mn worth of equities.
Bond prices resumed their fall in August with the 10-year G-Sec yields rising by 18 bps to 7.95%. Rising fuel prices and a depreciating Rupee were some of the influencing factors. The spreads of corporate bonds over the 10 year G-Sec fell from 61 bps to 51 bps.
Outlook for Markets
Fixed Income Market
India’s GDP growth rose to a solid 8.2% year-on-year in Q2 from 7.7% in Q1, and India’s Industrial Production, too, rose to 7% y-o-y in June from 3.9% in May. This is partly due to the base effect. Consumer Price Inflation (CPI) was lower than expected in July, falling to 4.2% y-o-y from 4.9% in June. Our current account deficit is expected to widen to USD 76bn (2.8% of GDP) in the current year, from USD 49bn (1.9% of GDP) in FY18.
With expectations of the CPI settling around 5%, the absolute levels of bond yields look extremely attractive. But global trade wars and US Fed rate- hike fears are leading to a sharp depreciation in emerging market currencies including the Indian Rupee, which is resulting in the yield remaining at a high level. We remain vigilant on our portfolio, while being actively positioned to take advantage of any opportunity across the curve.
