Equity monthly view for January 2020

Posted On Thursday, Feb 06, 2020


February 6, 2020
Quantum Equity Team

In the first month of year 2020, S&P BSE Sensex fell 1.3% (total return basis). S&P BSE Midcap and S&P BSE Smallcap indices performed much better. They had gain of 3.3% and 7.1% respectively.

Sectors such as real estate, telecom and consumer durables had superior performance during January 2020. Metal, oil & gas and PSU were among the sectors which dragged overall performance. Reliance Industries stock was down 6.8% for the month.

Market Performance at a Glance
 Market Returns %*
 January 2020
S&P BSE SENSEX **-1.30%
S&P BSE MID CAP **3.30%
BEST PERFORMER SECTORSReal estate, Telecom and Consumer Durables
* On Total Return Basis
** Source-Bloomberg
Past Performance may or may not be sustained in future.

FIIs invested USD 1.4 Bn during the month of January. Domestic institutions were net buyers to the tune of USD 0.3 Bn. Of this, 0.2 Bn came from mutual funds with insurers contributing the balance. Indian rupee appreciated marginally during the month from 71.38 to 71.35 per US dollar.

Geo-politics had a tumultuous start in the year and decade beginning 2020. There were tensions fuelled by killing of Iranian commander by US drone attack. Crude oil prices flared up in anticipation of counter attack by Iran. However matters cooled off and crude oil fell to levels before the current crisis.

January also witnessed signing of phase one deal between US and China, leading to minor truce among the leading world economies. China would buy USD 200 Bn worth of agricultural commodities, energy and other goods/services in exchange of lower tariffs on Chinese exports to the country. The countries will also tackle other contentious issues as part of phase 2 talks.

Later part of January coincided with outbreak of epidemic coronavirus. While it started in Wuhan state in China, it has spread to other parts of the world. Death toll has already crossed 500, all except 2 reported in China. There has been restriction on travel especially to China and nearby countries. China would be impacted with closure of factories, offices as well as consumption taking a hit with people staying indoors. Global supply chain for most products are also linked to China. This can cause disruption globally with India impacted as well, depending on how long it lasts.

Global monetary policy and liquidity remain at benign level. After loosening interest rates in 2019, central bankers remain in watch mode. With inflation closer to 2% and unemployment at very low level, US interest rates remain on hold for now.

Union Budget was announced on 1st February 2020 for financial year 2020-21. This was the 2nd Budget of NDA III under finance minister Ms Sitaraman. Fiscal space to the government was limited given lower tax collection and already announced tax cuts to companies in September 2019. On the positive side, Government showed spending discipline to rein in fiscal deficit to 3.5% for fiscal 2021.

Above will keep interest rates in check as excess government spending can fuel inflation and feed into interest rates. Deficit for current fiscal year is likely to be at 3.8%. Dividend distribution tax (which leads to double taxation of same profit) is abolished, which is likely to increase dividend payout by companies post Budget.

Among the negatives, Budget didn’t help industries which have been facing slowdown for some time. Real estate, NBFCs were looking for some help which didn’t come. Allocation to rural schemes such as MNREGA employment doesn’t show much increase. Given that rural sector faces stress and sections of population face malnourishment and illiteracy, support is critical for long term growth and prosperity of the economy.

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 decent return from equities over a long period in future. Investors should use this opportunity to allocate to equities. Even though markets appear at all-time high, this is driven only by selective stocks.

Data Source: Bloomberg

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

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Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

Above article is authored by Quantum.

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