Below is the Views On Equity by Atul Kumar, Head-Equity , Quantum Mutual Fund
In September month, S&P BSE Sensex appreciated 3.6% (total return basis). In comparison, BSE Midcap and BSE Smallcap indices ran up 4.8% and 5.3% respectively. This suggests risk taking was back in the equity markets for the month.
For the 9 months of 2019 so far, S&P BSE Sensex has risen 8.3%. BSE Midcap and BSE Smallcap index in the same period declined 7.8% and 9.6% respectively. Midcap and small cap stocks which were doing well for the past many years faced headwinds since the last 2 years.
Cyclical and commodity sectors did well during the month gone by. Capital goods, metal, auto, oil & gas apart from consumer durables were major gainers during the month. IT, healthcare and real estate sectors were losers for the month of September.
Rupee appreciated against US dollar by 0.8% during the month. FIIs were net buyers of equity during the month of USD 955 million. For the 9 months of 2019, FIIs have cumulatively bought USD 8.16 billion worth of stocks. DIIs bought stocks worth USD 1.7 billion in September, taking their year to date tally to USD 6.5 billion.
Globally growth remains weak and fears of recession have gripped developed markets. In such scenario, monetary policy remained loose with interest rates being cut in large parts of world. Following the lead of Euro zone, US also cut policy interest rates by 0.25% during the month. Resolution of US China trade dispute has a major bearing on global growth as well as confidence among businesses.
Dealing with growth slowdown in India, RBI also cut interest rates by 0.25% in early October. It has been among the most aggressive central banks worldwide when it comes to monetary policy easing. In 2019 so far, it has reduced policy rates by 1.35% and current repo rate stands at 5.15%.
Government also announced cut in corporate tax rate in the last month. Tax rate was cut from 34% to 25% for companies already existing. For new companies planning to enter business, tax rate of 15% is announced to encourage them to set up operations.
While this measure is good from long term perspective, it doesn’t address the near term slowdown that economy faces. Companies may not invest in new projects or create jobs as a result of lower tax. Instead they may retain that, reduce leverage or pay higher dividend.
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. There has been a decline in equity market recently and investors should use this opportunity to allocate to equities.
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