Equity Outlook

September 09, 2019
Quantum Equity Team

In the month of August 2019, S&P BSE Sensex closed lower by 0.25%. Mid and small cap stocks fell higher. BSE Midcap and BSE Smallcap index were down by 1.1% and 1% respectively. In the 8 months of 2019 so far, BSE Sensex has appreciated 4.55%. In the same period, BSE Midcap and Smallcap index had sharper fall of 12.0% and 14.1% respectively.

IT, auto and healthcare were among the sectors which performed well during the month. Metals, capital goods and banking were major losers. PSU stocks’ index was also down 8.3% during the month, reflecting heavy selling in govt owned listed companies.

Market Performance at a Glance
 Market Returns %*
 August 2019
S&P BSE SENSEX **- 0.25%
S&P BSE MID CAP **- 1.1%
S&P BSE SMALL CAP**- 1%
BEST PERFORMER SECTORSIT, Auto and Healthcare
LAGGARD SECTORSMetals, Capital goods and Banking
* On Total Return Basis
** Source-Bloomberg
Past Performance may or may not be sustained in future.

A deal with Saudi Aramco to sell 20% stake in refining/petrochem enthused the market. It also showcased plans to launch its broadband business at non predatory tariffs, a relief to investors.

FIIs were net sellers during the month given the deteriorating sentiment towards India. They withdrew USD 2.2 Bn during the month. So far during the calendar year FIIs have invested USD 7.2 Bn in Indian equities. DIIs on the other hand were buyers to the tune of USD 2.9 Bn in August. Cumulative investment of DIIs stands at USD 4.8 Bn.

Global growth outlook remains hazy. This has been accentuated by trade protectionist measures. Apart from China which is seeing decline in export led growth, the impact is felt at most places in an interconnected world.

Germany which is major economy of Eurozone, is seeing recession led by decline in manufacturing. Its manufacturing output found market in China among other places. There is also heightened uncertainty on Brexit. Argentina’s financial and currency markets also catapulted during the month on fears of debt default.

Among domestic news, GDP growth fell to a 6 year low at 5% in first quarter of fiscal 2020. Manufacturing growth (as measured by GVA) was just 0.6%. There is likely to be a policy response by lowering interest rates further to push economic growth. Already there has been 1.1% drop in policy rates. Inflation remains well under control helping the loosening of monetary policy.

There has been a drastic slowdown in activity in the economy. Even products such as biscuits/innerwear which were considered to have inelastic demand have seen an impact. Private consumption has taken a big hit post September 2018 when NBFC crisis unfolded. Government announced measures to address problems of auto, NBFC and small & medium businesses. Later it also announced a merger of banks where 10 state owned banks will fold into 4.

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.

Data Source: Bloomberg

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