Equity Outlook

November 07, 2019
Quantum Equity Team

Month of October 2019 witnessed S&P BSE Sensex appreciate 3.9%. BSE Midcap and Smallcap index also did reasonably well with rise of 5.4% and 3.0% respectively. In 10 months of calendar year 2019 BSE Sensex has given a reasonable 12.5% return.

In contrast, midcap and smallcap indices still have to recoup their losses of 2019. On year to date basis, BSE Midcap and BSE Smallcap index are down 2.9% and 6.9% respectively.

Auto, oil & gas and PSUs were among the sectors which performed best during October. On the other hand telecom, IT and capital goods were sectors which were beaten down during the month. Telecom sector was slapped with penalty of aprox 900 billion INR by a ruling of Supreme Court, hurting an industry already stressed.

Market Performance at a Glance
 Market Returns %*
 October 2019
S&P BSE SENSEX **3.9%
S&P BSE MID CAP **5.4%
S&P BSE SMALL CAP**3.0%
BEST PERFORMER SECTORSAuto, Oil & Gas and PSUs
LAGGARD SECTORSTelecom, IT and Capital Goods
* On Total Return Basis
** Source-Bloomberg
Past Performance may or may not be sustained in future.

FIIs were net buyers in the month of USD 2.1 billion. In 2019 so far, they have put USD 10.2 billion in Indian stocks. DIIs invested USD 0.7 billion in stocks for the month and USD 7.2 billion cumulatively in 10 months of 2019. While mutual funds have been net buyers, insurers are sellers among DIIs. Rupee depreciated 0.1% during the month against US dollar.

On the global economy front, US central bank cut interest rates during the month. This is the 3rd cut during 2019, and probably the last as per US Fed. Unemployment remains at record low levels there. S&P 500, a benchmark for US equities touched a record high. In other developed markets such as Japan and Eurozone, interest rates are in negative territory. Eurozone led by Germany faces recession due to trade wars.

Global markets had a run up on news that US and China had reached an agreement on trade sanctions. Brexit deal was also stitched with EU even as it remains to be passed by UK Parliament.

In India, RBI cut interest rates expectedly as economic growth has stalled and inflation remains subdued. Economic activity as measured by core sectors’ performance continues to remain below average. There has been news of more stimulus coming from the Government which could take the form of cut in personal tax rates and sops to builders/home buyers.

October also was the festive season which traditionally sees big consumer spending. Some sectors such as auto pinned hope on this to rev up their sales. Sales for auto sector were relatively good during the month. The pace is unlikely to sustain as a lot of discounts were offered on product as well as financing.

Many companies have reported their 2nd quarter results. Profitability of Nifty companies seems to grow at c13%, which is lower than 20% levels projected at start of the year. This has been the case since 2014, and bullish sell-side estimates have belied reality.

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. 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. 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

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