Monthly Review (As on 31st Oct 2019)
Equity Market review
Monthly Review
Equity markets continued to rally for the second successive month, with the Nifty-50 up by 3.5% in October in addition to the 4% up move in September. More importantly, broader markets outperformed headline indices, with the Nifty Midcap-100 index rallying by a significant 4.9%. Foreign institutions bought equities worth US $1.8 billion, and domestic institutions bought US $656 million worth of equities in October. The purchases by foreign institutions in September and October have exceeded their selling in the prior 2 months (post-Budget, July and August).
Bond prices rose in October, with the 10-year G-Sec yield falling by 5 bps to 6.65%. A new 10-year Govt. Security, too, was issued during the month, at 6.45%. Most macro-economic parameters were broadly stable during the month. Foreign investors were buyers in the debt market to the extent of ₹ 3670 crore.
Outlook for Markets
Equity Market
Expectations for the ongoing corporate earnings season for the quarter ending September 2019 had been subdued, but the actual results have been slightly better. Margins have surprised positively, thanks to cost-control measures by corporates in the wake of the slowdown in the economy, as well as softer input raw material costs. The festive season has ended on a positive note in terms of consumer demand, and inventory levels have reduced in the auto and consumer-discretionary sectors. Interest rates globally and locally, have continued to be cut by Central Banks, which should aid earnings going forward, with better rate transmission. RBI’s mandatory external benchmark-based interest rates for particular categories of loans, too, have become effective from October 1st.
We have seen some earnings upgrades for many of the listed companies, primarily on the back of the cut in corporate tax rates, and partly on the back of better results in the September quarter. However, further upgrades in numbers would depend on the sustenance of the recent indicative recovery in domestic demand. At this juncture, markets seem to be fairly valued on headline indices, with the Nifty-50 trading close to its high. However, there could be meaningful upside potential in individual stocks and in the broader market if we see a gradual revival in economic growth and corporate earnings growth in the forthcoming quarters (in addition to the lower corporate tax adjustment which is already priced in).
Monthly Review (As on 31st Oct 2019)
Debt Market review
Monthly Review
Equity markets continued to rally for the second successive month, with the Nifty-50 up by 3.5% in October in addition to the 4% up move in September. More importantly, broader markets outperformed headline indices, with the Nifty Midcap-100 index rallying by a significant 4.9%. Foreign institutions bought equities worth US $1.8 billion, and domestic institutions bought US $656 million worth of equities in October. The purchases by foreign institutions in September and October have exceeded their selling in the prior 2 months (post-Budget, July and August).
Bond prices rose in October, with the 10-year G-Sec yield falling by 5 bps to 6.65%. A new 10-year Govt. Security, too, was issued during the month, at 6.45%. Most macro-economic parameters were broadly stable during the month. Foreign investors were buyers in the debt market to the extent of ₹ 3670 crore.
Outlook for Markets
Fixed Income Market
The US Federal Reserve cut the policy rate by 25 bps, but provided a neutral guidance. In India, the Monetary Policy Committee, too, announced a further 25 bps rate cut, taking the cumulative cut in the repo rate in calendar 2019 to a substantial figure of 135 bps. It has also guided for further monetary policy action if growth continues to be weak (provided inflation remains benign). Industrial production disappointed sharply in August 2019 with a 1.1% negative growth, with most sectors showing contractions in output. Consumer inflation rose from 3.28% to 3.99% and has converged with the core Consumer Price Index (CPI), which fell from 4.20% to 4.01%. The trade deficit for September at $ 10.9 billion surprised positively, but this was due to lower imports of gold, oil and capital goods. Forex reserves are now at an all-time high of $ 440 billion and system liquidity remains in a large surplus of ₹ 2.5 trillion, which could support rate transmission.
Given the above backdrop of slower economic growth and low core Consumer Price Index (CPI), bond yields could trend lower. However, with sharply lower corporate tax collections in the current financial year (after the recent announcement of a sharp cut in corporate tax-rates), lower-than-targeted GST collections, or lower divestment figures (particularly if the ongoing privatisation plan takes slightly longer and extends into the next financial year), we could see additional Government borrowings leading to some rise in yields. In the near-term, we expect the 10-year Gsec yields to trade in the 6.35% - 6.60% range.
