Equity monthly view for February 2020

March 11, 2020
Quantum Equity Team

February month turned out to be bad for equities. S&P BSE Sensex fell 5.9% during the month, which was led largely by external factors. Start of the month saw sell-off which was related to disappointment with Union Budget. Thereafter global factors took over. Fall in international crude prices wiped out the losses from Budget.

Subsequently markets were gripped by fears of coronavirus. Unlike what was earlier thought that its impact was limited to China, many countries started to positive report cases and deaths related to the disease. This made stock markets fearful while bond yields fell globally. US stock market had sharpest weekly decline since Lehman crisis.

Small and midcap indices had a performance similar to BSE Sensex in February month. BSE Midcap index declined 5.3% during the month while Smallcap index shrinked by 6.4%. Among sectors, real estate, auto, metal and capital goods stood out for losses in double digits.

Telecom was rare sector which had gains during the month. Healthcare was another sector which had limited losses. Indian rupee depreciated 1.1% during the month.

FIIs invested USD 0.4 Bn in February. So far in the two months of 2020, they have put 1.8 Bn in Indian equities. Domestic institutions bought USD 2.3 Bn worth of stocks during the month. Their tally stands at USD 2.7 Bn so far

At global level, various agencies cut the global growth forecast on restriction of people and goods movement. US central bank expressed its opinion in January to slash interest rates to fight the consequences of emerging pandemic. The same was followed by a cut in interest rates by half percentage point in early February.

On the domestic side, macroeconomic data remains subdued. GDP growth for third quarter of fiscal 2020 came in at 4.7%. Consumer level inflation stood above 7% for previous month. Some part of this is seasonal and is likely to reverse with normalisation of food prices. Crude has been a savior for the economy, with India’s external trade balances looking favourable.

Start of March also witnessed sort of nationalization of Yes Bank, a private sector bank. Regulators capped withdrawals from the bank at Rs 50,000 creating panic among depositors. Even as depositors are assured of safety of their savings, such limits create nervousness.

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 over the long term. While economic growth faces pressure in near term, better monsoon and measures to ease liquidity are likely to stimulate growth. Events like global trade wars have very limited impact on India.

Investors can expect good return from equities over a long period in future. We carefully assess the risk reward equation of stocks given a very dynamic global and domestic investing environment.

Data Source: Bloomberg

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