Monthly Review (As on 31st August 2017)
After a sharp rally in the month of July, the Nifty 50 fell by about 1.6% in line with most of the global indices, due to an increase in geopolitical tensions and disappointing quarterly results. The recently concluded earnings season was muted compared to market expectations; mainly led by disappointments from the IT and pharmaceuticals sectors, and some of the banks, apart from the GST-impact on some of the consumer-oriented sectors. On the global front, the volatility has increased across global indices on account of geo-political tensions between United States and North Korea. There has been some risk-off globally, leading to Indian markets witnessing fairly large negative flows on the FII front (sales of $1.8bn in the month of August), though the fall in the market was contained due to the large buying from the domestic funds, to the tune of $2.5bn during the month.
Economy
The GDP for the first quarter of the current financial year slowed sharply to 5.7% YOY compared to 7.6% in the similar quarter last year. This was worse than expected, and was the first instance of sub-6% growth in 13 quarters. RBI cut the repo rate by 25bps to 6% on falling inflation, but maintained its year-end CPI estimates intact at above 4%.
Market Outlook
Equity Market
A contained inflation and fiscal deficit, coupled with a stable currency and recent reforms such as the GST, bode positive for the economy. However, corporate earnings on an overall basis are yet to show a meaningful improvement. Though there could be some further GST-related impact on some of the sectors for the ongoing quarterly results as well, the second half of the current financial year would be keenly watched for corporate profit growth. We remain positive on the equity market in the longer-term, with a near-term sideways correction being more likely in terms of indices, while some of the individual stocks have already corrected in the past couple of months.
Monthly Review (As on 31st August 2017)
The July inflation data(CPI : 2.4% compared to 1.5% in June) suggests that there is no demand-push inflation at this stage, but supply-side factors (like higher vegetable prices and GST) have together led to higher headline and core inflation. Bond prices fell in August, with the yield on the 10-year Government Security rising slightly by 6 basis points to 6.53%, due to geopolitical tensions & apprehension about an increase in inflation due to the initial impact of the GST and the 7th Pay Commission.
Economy
The GDP for the first quarter of the current financial year slowed sharply to 5.7% YOY compared to 7.6% in the similar quarter last year. This was worse than expected, and was the first instance of sub-6% growth in 13 quarters. RBI cut the repo rate by 25bps to 6% on falling inflation, but maintained its year-end CPI estimates intact at above 4%.
Market Outlook
Fixed Income Market
India’s macro-economic environment remains supportive for lower interest rates, with the inflation data being inline and with the GDP data being lower than market expectations. There do exist some risks of global financial volatility if the geopolitical tension were to accelerate further, since this would put pressure on currency and rates. We remain biased towards long duration in our fixed income portfolios, while monitoring the above risks.