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Published on 11/06/2019 8:54:45 AM | Source: Quantum Mutual Fund

Monthly Equity Views - Quantum Mutual Fund

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Below is the Views On Monthly Equity Views by Atul Kumar, Head – Equity, Quantum Mutual Fund

 

Monthly Equity Views by Atul Kumar, Head – Equity, Quantum Mutual Fund

 

Month of May was volatile but ended on a good note for Indian equities. S&P BSE Sensex rose 1.88% based on total returns (including dividends). Mid cap and Small cap indices also had a decent run with appreciation of 1.43% and 1.7% respectively. Exit polls predicted a clear majority for BJP led NDA government. Market wished for continuity and positively greeted the news.

In the first 5 months of 2019 so far S&P BSE Sensex has given 10.46% return. S&P BSE Midcap and S&P BSE Smallcap have been trailing behind with -2% and 1.27% increase respectively. Sectors such as banking, capital goods and real estate were among those that gained maximum during the month. Healthcare and metal were shunned by investors.

Reports of price manipulation in the US and consequent regulatory action hurt pharmaceutical stocks. Trade dispute between US and China led to soft outlook for most industrial commodities including metals.Indian currency depreciated 0.19% during the month.

 

PAST PERFORMANCE MAY OR MAY NOT BE …..

FIIs turned positive on India with net purchase of stocks worth USD 1.4 billion. In 5 months so far, FIIs have been buyers to the tune of USD 11.2 billion. Domestic institutions (DIIs) were buyers of USD 750 millionworth of stocks in May. Of this, majority USD 730 million was from MF players and insurers contributed the rest. Till date, DIIs had net outflows of USD 1.6 billion from stocks in 2019.

Month gone by saw an escalation in Sino-US trade disputes and caught the world markets unaware. US imposed higher tariffs on Chinese imports worth USD 200 million. This was after the trade talks between the two countries failed as China reneged on some clauses that it agreed earlier. The response from Chinese side was to increase tariff on USD 70 billion worth US items.

Matters have deteriorated further with Chinese equipment, specially telecom related getting banned by US Government for any domestic use. The measures and counter-measures are likely to slow down global trade and growth. Demand for many commodities including crude could be affected and their prices have taken a knock.

There are signals that US Fed could reduce interest rates further, which had started to go up in last 2 years. Fears of recession due to trade conflict is reason for possible rate cut in US. Euro zone has also increased liquidity pushing interest rates closer to zero or negative. Such movements have impact on emerging markets such as India. Higher interest rates could lead to flight of capital whereas lower rates cause deluge and increase price of most assets.

Among other events, Brexit deal of Prime Minister Theresa May was rejected after multiple events. She has resigned from her post and a new leader is being looked forward to. This has also increased political and financial uncertainty.

Among domestic news, BJP emerged winner after LokSabha elections. It bettered its victory margin of 2014 with 303 seats. However, the economy isn’t in a good shape. GDP has grown at 5.8% in last quarter of 2019 fiscal, a considerable slowdown. Problem faced by NBFCs which started in September still continues to linger on. There has been a slowdown in private consumption of most items including cars and two wheelers.

Capital expenditure from private sector is also not showing signs of pick up. Government may have to take steps to increase investment in infrastructure and also help the rural sector with handouts which have been facing problems. While the fiscal deficit may go up, these steps could stimulate the slowing economy.

RBI has cut interest rates by 0.25% early June as was expected. One can expect further reduction as GDP momentum has slackened and also inflation remains under control. Monsoons have been delayed by some days. This is crucial for the country as large part of agriculture sowing depends on rains.International crude oil prices have declined from $75 to $60, a relief for the countryas it depends heavily on imports.

Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many nations. Economy is dependent on domestic consumption and thus insulated from any global problems. Events like global trade wars have very limited impact on India. Investors can expect good return from equities over a long period in future. However, valuations have run up recently.

 

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