EQUITY OUTLOOK By Mr. Nilesh Shetty Associate Fund Manager, Equity Funds Quantum Long Term Equity Fund and Quantum Multi Asset Fund
Equity markets rebounded sharply in the month of April with the S&P BSE Sensex rising by 6.65% during the month on a total return basis. Mid cap and Small cap indices performed inline or marginally better than the broader benchmark. S&P BSE MidCap Index rose 6.6% whereas S&P BSE SmallCap index rose by 8.29%. For the calendar year 2018, S&P BSE Sensex has risen by 3.43% while the BSE Midcap Index has declined by 4.38% and the S&P BSE SmallCap Index has declined by 4.22%.
Information Technology was the standout sector rising by 12% driven by strong results reported by the sector leader. The FMCG sector rose by 9.87% after forecast of normal monsoons by the IMD. Healthcare, Automobiles and Metals were among the sectors which performed better than benchmark during the month. Telecom and Oil & gas were sectors which performed poorly during the month.
FIIs were net sellers to the tune of USD 846 Mn in the month of April. So far in 2018, they have bought USD 1.3 Bn worth stocks. DIIs were net buyers of USD 1.3 Bn, taking their tally to ~USD 5 Bn in 2018. Mutual funds continue to dominate the DII purchase. The Indian Rupee depreciated during the month by 2.28% against, the US dollar.
A significant event in the month of April was the US 10 year Treasury yield breaching the 3% mark for the first time after 2014. Given that US treasury yields set the benchmark for cost of capital across the world, rising US interest rates would raise the cost of capital globally impacting flows into emerging markets like India. Rising international crude prices have created further pressures oil importing countries like India, weakening the current account deficit as well as increasing the upside pressure on Inflation.
Domestically, the 10 year G-Sec treasury yield started climbing quickly, after minutes of the Monetary Policy Committee meeting revealed a hardening outlook towards inflation and possible rate hikes in the future to combat the same. India over the last four years has been a story of weak micro but favorable.
macro environment as inflationary and currency pressures receded, but domestic demand continued to remain muted. There is a possibility over the next few years that the macro environment turns unfavorable with rising crude and inflation just when the domestic demand looks to be reviving and capacity utilisations of companies improve.
Significant increase in share prices over the last few years despite being devoid of any earnings growth has made valuations across most companies expensive. Rising global liquidity has lowered risk aversion. We may just be entering a phase where global liquidity recedes making valuations a lot more reasonable. Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many nations. The risk reward framework would suggest investors to remain cautious in the near term. Investors at this point should continue SIPs but refrain from taking large fresh position in equities.
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