Monthly Review (As on 31st March 2021)
Equity Market review
Monthly Review
Equity markets closed the month of March with a small gain of 1% in the Nifty-50 index, off the intra-month highs due to concerns arising from a renewed increase in Covid cases in some of the States. The month started on a positive note with the reporting of a positive figure for the GDP growth for the 3rd quarter of FY 2020-21, at +0.4%, after the negative figures witnessed in the first 2 quarters. An increasing pace of Covid-vaccination across India also aided the sentiment in the early part of the month. However, there were disappointments during the latter part of the month with the rising Covid cases, imposition of restrictions by some State Governments and rising global bond yields. On the macro front, inflation for the month of February rose more than expected while industrial growth contracted. Flows in equities continued to remain strong with Foreign Institutional Investors (FIIs) purchasing over $2.6bn in March and even the domestic flows turning positive.
Bond prices rose during the month; with the 10-year Government Security yield falling by 5 basis points to 6.18%. The fall in bond yields could be attributed to the cancellation of the last G-Sec auction, Open Market Operations by RBI and cooling-off of crude oil prices. Foreign institutions were buyers of around ₹ 6822 cr of debt securities during the month. The spread of the 10-year AAA PSU corporate bonds to the benchmark Central Govt security, compressed from 88 bps to 56 bps, with a high demand for Govt-serviced corporate bonds, as there is no supply of these bonds scheduled in FY 2021-22.
Outlook for Markets
Equity Market
FY 2020-21 was an eventful year for equity markets, with gains of over 70% in large cap indices after having commenced with an uncertain outlook in the midst of a nationwide lockdown. The economic recovery post unlocking was much faster than expected and the overall corporate earnings were much better than expectations, though some of the sectors were adversely impacted. Earnings upgrades outpaced downgrades during the year. The Union Budget was a major positive; the Government's focus on fiscal expansion and a higher spending on capex augurs well for a potential revival of the long-delayed private investment cycle. India’s economy has witnessed a sharper recovery, with Q3 FY 2020-21 GDP numbers in the positive territory, at +0.4% and with expectations of FY 2021-22 GDP numbers of more than 10% growth. While the initial part of the rally in the market was a liquidity-driven one, the latter part of rally was led by improving fundamentals and finally by the budgetary announcements.
The Nifty’s current valuations at 19x FY 2022-23 expected earnings may appear to be on the higher side; there are high growth expectations for FY 2021-22 and FY 2022-23 being factored into the earnings projections, aided by the positive environment which the recent Budget has attempted to spur, is aiding these expectations. While some of these expectations could be at risk if the second wave of Covid cases spreads across the country and prolongs; rising global yields could pose a risk to the continuation of Foreign Institutional Investor (FII) inflows. However, the ongoing accelerated vaccination drive in India and the prior learnings by corporates could help contain the economic impact. Markets could see more of a time-correction as compared to a price-correction on an overall basis; and stock-specific or sector-specific price-corrections could provide entry opportunities if the longer term outlook for these stocks/sectors is intact.
Monthly Review (As on 31st March 2021)
Debt Market review
Monthly Review
Equity markets closed the month of March with a small gain of 1% in the Nifty-50 index, off the intra-month highs due to concerns arising from a renewed increase in Covid cases in some of the States. The month started on a positive note with the reporting of a positive figure for the GDP growth for the 3rd quarter of FY 2020-21, at +0.4%, after the negative figures witnessed in the first 2 quarters. An increasing pace of Covid-vaccination across India also aided the sentiment in the early part of the month. However, there were disappointments during the latter part of the month with the rising Covid cases, imposition of restrictions by some State Governments and rising global bond yields. On the macro front, inflation for the month of February rose more than expected while industrial growth contracted. Flows in equities continued to remain strong with Foreign Institutional Investors (FIIs) purchasing over $2.6bn in March and even the domestic flows turning positive.
Bond prices rose during the month; with the 10-year Government Security yield falling by 5 basis points to 6.18%. The fall in bond yields could be attributed to the cancellation of the last G-Sec auction, Open Market Operations by RBI and cooling-off of crude oil prices. Foreign institutions were buyers of around ₹ 6822 cr of debt securities during the month. The spread of the 10-year AAA PSU corporate bonds to the benchmark Central Govt security, compressed from 88 bps to 56 bps, with a high demand for Govt-serviced corporate bonds, as there is no supply of these bonds scheduled in FY 2021-22.
Outlook for Markets
Fixed Income Market
In Europe, the ECB maintained a status quo on expected lines but with a dovish announcement of an increase in the pace of its weekly purchases over March-June as compared to the prior quarter. In US, the Federal Reserve too maintained a status quo. In India, the headline Consumer Price inflation for February spiked to 5.03% YoY from 4.06% YoY, led by higher food and fuel prices and core inflation too rose to 5.88% YoY. Headline industrial production for January contracted by 1.6% YoY after registering a growth of 1.6% YoY (revised upwards) in December. February GST collections, collected in March were at all-time high at ₹ 1.24 lakh crore driven by economic recovery and improved compliance. The Government plans to borrow ₹ 7.24 lakh crore in the first half of FY2021-22, translating into ~60% of the total amount budgeted for the year.
India is experiencing the second wave of Covid, resulting in localised lockdowns, which could result in slightly slowing the economic growth. The borrowing numbers though in line with the trend, are slightly higher than expectations. However, a continuous support from RBI through buybacks and other measures could prevent interest rates from rising substantially. The inflation target range has been re-affirmed as 2%-6% for FY 22-26. We expect the 10-year G-Sec to trade in a broad range of 6.10%-6.30% in the near term.