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Equity Market

Equity Commentary -

August 2019

Indian equity markets were down significantly for the month of August 2019 with the Sensex down by (0.4%), and the Nifty by (0.9%). The broader market; the BSE Midcap & the BSE 200 were also down with a performance of (1.3%) and (0.6%) respectively. In terms of sectors; Consumer, Capital Goods, Pharma, Auto and IT were the major outperformers whilst all other sectors underperformed the BSE Sensex. FIIs were net sellers in July, with net outflows to the tune of ~USD (2.2 bn). Net equity buying in July by domestic MFs in the market were ~USD 2.3 bn.


Index Name As on As on As on Return in %
30-Aug-19 31-Jul-19
30-Aug-18 1 Month 1 Year

Nifty 50 

11023

11118

11681

-0.9

-5.6

S&P BSE Sensex 

37333

37481

38645

-0.4

-3.4

S&P BSE MID CAP 

13468

13643

16881 

-1.3

-20.2

S&P BSE SMALL CAP 

12535 

12692

17193

-1.2

-27.1

S&P BSE 200 

4609

4635

5041

-0.6

-8.6

S&P BSE AUTO 

15768 

15472

24716 

1.9

-36.2 

S&P BSE Bankex 

30950

32689

31742 

-5.3 

-2.5 

S&P BSE Consumer Durable  

16942

17556 

18997 

-3.5

-10.8

S&P BSE Capital Good

23420

22342

21696

 4.8

7.9 

S&P BSE FMCG

11077

11062 

12772 

0.1 

-13.3 

S&P BSE Health Care

12875

12704 

15945 

1.3 

-19.3 

S&P BSE IT

16149

15733

15549

2.6 

3.9 

S&P BSE METAL 

8524

9685

13821 

-12.0 

-38.3 

S&P BSE Oil & Gas

13164

13237 

15079

-0.6 

-12.7 

S&P BSE Power Index

1888

1966

2141

-4.0 

-11.8

S&P BSE Realty

2048

2067

2141

-0.9

-4.4



Index Name As on As on As on Return in %
30-Aug-19 31-Jul-19
30-Aug-18 1 Month 1 Year

Nifty 200 

5692

5732

6241

-0.7

-8.8

Nifty 50 

11023

11118

11681

-0.9

-5.6

Nifty Auto

7009

6852

11009

2.3

-36.3

Nifty Bank

27428 

28876

28062

-5.0

-2.3

Nifty Commodities 

3088

3270

3852

-5.6

-19.9

Nifty Energy 

14382 

14559

15763

-1.2

-8.8

Nifty Financial Services

12418

12707

11719

-2.3 

6.0

Nifty FMCG  

29257

29066

32912 

0.7

-11.1

Nifty India Consumption

4673

4488

5379

4.1

-13.1

Nifty Infrastructure

3001

3087 

3289

-2.8

-8.8 

Nifty IT

16010

15620 

15811 

2.5

1.3 

Nifty Metal

2290

2588

3643

-11.5

-37.1

Nifty Midcap 100 

15652

15921

19920

-1.7

-21.4

Nifty Pharma

8072

7988

10391

1.1

-22.3

Nifty Realty

267

267

276

-0.1

-3.1

Nifty Smallcap 100

5446

5522

7669

-1.4

-29.0




The Macro Picture

  August 2019 July 2019
WPI 1.08% (July 2019) 2.02% (June 2019)
CPI 3.15% (July 2019) 3.18% (June 2019)
Index of Industrial Production 2.00% (June 2019) 3.09% (May 2019)
Repo rate 5.4% (as on August 31, 2019) 5.75% (as on July 31, 2019) 
Marginal Standing Facility Rate 5.65% (as on August 31, 2019)   6.00% (as on July 31, 2019) 

Source: RBI, MOSPI



Inflation

India’s Wholesale Price Inflation (WPI) Index came in at 1.08% YoY in July 2019 as compared to 2.02% for June 2019 on account of stable food inflation.

The Consumer Price Inflation (CPI) index came at 3.15% YoY in July as compared to 3.18% in the previous month on benign food prices.

Growth

India’s Real Gross Domestic Product (GDP) grew at 5% YoY in Q1 FY20 reducing from the pace of 5.8% in Q4FY19. Private consumption grew 3.1% YoY for the quarter. The gross fixed capital formation growth improved marginally to (~4% YoY).

Other macro developments (fiscal deficit and household savings)

India’s fiscal deficit for FY19 was at 3.39% against the earlier budgeted 3.3%, a marginal increase – a decent performance by the government given the headwinds it faced on lower GST tax collections. The budgeted number for FY20 also stands at 3.4% including the new income supplement scheme for marginal farmers to the tune of approximately US$10bn.

Market Outlook

General news flow from India in recent times seems to be on the negative side with slower growth than anticipated. We at Tata Asset Management believe, India is always a mixed bag with some segments of the economy doing very well while some suffering. Similar is the case currently. For example, 67%+ of our portfolio companies grew profits in Q1FY20 in excess of 20% and are likely to deliver similar growth for the full year as well inspite of GDP growth slowing down. The important aspect to highlight is that India market remains a stock pickers paradise and performance of individual companies is more important than the overall market.

Monsoon 2019 in the key months of July and August was in excess of normal. Most rivers and reservoirs are full, which augurs very well for the agri economy of the country going ahead.

In another positive development, we are seeing overseas investors very active in 2 key segments of Indian economy – 1. Commercial Real Estate – FY19 and FY20 are two years where FDI in real estate is very large with PE players taking out stressed developers and becoming large owners of commercial real estate in the country. 2. Road Infrastructure – Large bids are in the pipeline for stressed BOT/HAM asset owners ie IL&FS road assets, Dilip Buildcon etc, this is likely to de-clog the system and fresh lending can take place incrementally from FY21 thereby helping the economy do well going forward.

Near term strong 15%+ CAGR earnings growth by Nifty/Sensex companies along with reasonable valuations make us optimistic of our performance going forward.

In terms of our portfolio positioning, we remain focused on companies with faster earnings growth visibility. We continue to remain overweight on private sector banks on account of their ability to gain market share and maintain relatively higher growth rates.

Long-term structural drivers like demographic advantage, low household debt, limited penetration across different consumer categories, increased potential for financial savings and urbanization makes India a compelling equity story from medium to long term perspective.

We believe investors would be well advised to invest with medium to long term perspective and systematically increase exposure to Indian equity markets.


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