MARKET UPDATE Feb 2015
News
The headline CPI inflation rose to 5.0% in December, lower than expected. The downward surprise in December was due to a sharp sequential contraction in vegetable prices (-7.9% mom). WPI inflation for December came in at 0.11% versus 0.0% in previous month.
The sustained disinflation momentum prompted the RBI to start the easing cycle earlier than expected. Surprising the markets, the RBI cut the policy repo rate by 25 bps to 7.75% before the scheduled policy meeting in February.
IIP growth picked up in November to 3.8% y-o-y from a sharp contraction of 4.2% in October.
The Government has released a new series of national accounts, revising the base year from FY05 to FY12. The key highlight and surprise is the economic recovery in FY14 to 6.9% from 5.1% in FY13 when the old data was showing a flat trend.
India’s trade deficit narrowed to US$9.4bn in December'14, from an 18 month high level of US$16.9bn in November’14.
Government kick-started its US$10bn divestment drive in earnest with just two months left in the fiscal and 100% of fiscal deficit already utilised. It met with early success though as the Coal India’s US$3.6bn divestment was fully subscribed.
The ECB announced monthly purchases of EUR60 bn QE that will include asset-backed securities and covered bonds extending till September 2016.
Equity Market Update
Indian equity markets were up during the month of January with large cap indices rising by ~6% and mid cap and small cap index by 3.5% and 2.2% respectively. During the month, performance of global equity indices was mixed with DAX and CAC 40 showing maximum gains of 9.1% and 7.8% respectively while Dow Jones and S&P 500 posted decline of 3.7% and 3.1% respectively.
The Sensex and Nifty are up 42.3% and 44.7% on a y-o-y basis. The BSE mid cap and BSE small cap indices are up 70.2% and 80.9% y-o-y as of January 30, 2015, thus outperforming the large caps by a large margin.
FII’s inflow was strong at US$2bn in the cash market. Moreover, they also bought debt worth US$3.4bn. DII’s were net sellers to the tune of US$ 1.3bn while MF’s bought stocks worth US$39mn implying selling by Insurance firms.
Market Outlook
Post the spectacular rally in the month, the market is reaching a zone of uncertainty with key events in coming month which could lead to higher volatility. Key events include (a) Q3FY15 results season (b) RBI’s monetary policy (c) Government divestment program and its impact on liquidity (d) Delhi election outcome, (e) Economic survey and Union budget 2015 -16 and (f) lingering global issues like the Greece debt standoff.
The Q3FY15 earnings season till date has been mixed with more disappointments than positive surprises. The results so far are reminder that improvement in economic activity and earnings is still some time away. However, improved macroeconomic environment through ongoing reforms, initiation of rate cut cycle by RBI and strong global liquidity are likely to support the markets.
We continue to maintain a positive bias on the market from medium to long term perspective. The markets are trading at about 17.1xFY15 & 15.7x FY16 estimated earnings for SENSEX. We believe that multiple expansion driven gains are largely over and the next leg of market gains will be driven largely by corporate earnings growth. We expect the earnings growth to pick up in next 6 to 9 months.
Happy Investing
News
The headline CPI inflation rose to 5.0% in December, lower than expected. The downward surprise in December was due to a sharp sequential contraction in vegetable prices (-7.9% mom). WPI inflation for December came in at 0.11% versus 0.0% in previous month.
The sustained disinflation momentum prompted the RBI to start the easing cycle earlier than expected. Surprising the markets, the RBI cut the policy repo rate by 25 bps to 7.75% before the scheduled policy meeting in February.
IIP growth picked up in November to 3.8% y-o-y from a sharp contraction of 4.2% in October.
The Government has released a new series of national accounts, revising the base year from FY05 to FY12. The key highlight and surprise is the economic recovery in FY14 to 6.9% from 5.1% in FY13 when the old data was showing a flat trend.
India’s trade deficit narrowed to US$9.4bn in December'14, from an 18 month high level of US$16.9bn in November’14.
Government kick-started its US$10bn divestment drive in earnest with just two months left in the fiscal and 100% of fiscal deficit already utilised. It met with early success though as the Coal India’s US$3.6bn divestment was fully subscribed.
The ECB announced monthly purchases of EUR60 bn QE that will include asset-backed securities and covered bonds extending till September 2016.
Equity Market Update
Indian equity markets were up during the month of January with large cap indices rising by ~6% and mid cap and small cap index by 3.5% and 2.2% respectively. During the month, performance of global equity indices was mixed with DAX and CAC 40 showing maximum gains of 9.1% and 7.8% respectively while Dow Jones and S&P 500 posted decline of 3.7% and 3.1% respectively.
The Sensex and Nifty are up 42.3% and 44.7% on a y-o-y basis. The BSE mid cap and BSE small cap indices are up 70.2% and 80.9% y-o-y as of January 30, 2015, thus outperforming the large caps by a large margin.
FII’s inflow was strong at US$2bn in the cash market. Moreover, they also bought debt worth US$3.4bn. DII’s were net sellers to the tune of US$ 1.3bn while MF’s bought stocks worth US$39mn implying selling by Insurance firms.
Market Outlook
Post the spectacular rally in the month, the market is reaching a zone of uncertainty with key events in coming month which could lead to higher volatility. Key events include (a) Q3FY15 results season (b) RBI’s monetary policy (c) Government divestment program and its impact on liquidity (d) Delhi election outcome, (e) Economic survey and Union budget 2015 -16 and (f) lingering global issues like the Greece debt standoff.
The Q3FY15 earnings season till date has been mixed with more disappointments than positive surprises. The results so far are reminder that improvement in economic activity and earnings is still some time away. However, improved macroeconomic environment through ongoing reforms, initiation of rate cut cycle by RBI and strong global liquidity are likely to support the markets.
We continue to maintain a positive bias on the market from medium to long term perspective. The markets are trading at about 17.1xFY15 & 15.7x FY16 estimated earnings for SENSEX. We believe that multiple expansion driven gains are largely over and the next leg of market gains will be driven largely by corporate earnings growth. We expect the earnings growth to pick up in next 6 to 9 months.
Happy Investing
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