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Market Review

​​​​​​​​​​​OVERVIEW OF MARKET

Nifty was resilient during the month of May closing largely flat despite rising crude prices and political uncertainty after the Karnataka elections. On a positive note, the IMD has predicted a normal southwest monsoon and quarterly earnings excluding corpoarte banks saw an inflection . Crude price touched $80 during the month but closed lower at $77.5 as Saudi Arabia and Russia agreed to raise oil production. Further, Banking and FMCG sectors’ outperformed while Pharma, Auto and Infra underperformed the Nifty for the month. FIIs sold approximately Rs 10,060 cr (as per NSDL), while domestic mutual funds bought around Rs 13,574 cr of equity during the month.

On the economy front, 4QFY18 GDP growth surged to 7.7% leading to FY2018 growth of 6.7%. The Index of Industrial Production fell to 4.4% in March compared to 7.1% in February. CPI inflation rose to 4.6% in April against 4.3% in March. WPI inflation rose sharply to 3.2% in April as against 2.5% in March.

The Bond yield rose during the month of May 2018. The benchmark 10 year G-Sec (7.17% GOI 2028) closed at 6bp higher at 7.83% against 7.77% last month.

Outlook

Fixed Income market started the fiscal on a positive note with Government substantially reducing the first half borrowing calendar, supported by dovish MPC commentary. However positive sentiments where short-lived as hawkish MPC minutes negatively impacted the market sentiment and FPI selling gathered momentum with rising crude oil prices, global yields and depreciating currency(INR). At current level, lot of adverse developments have been factored in by the market. Medium term rate path will be contingent upon likely infusion of sizeable permanent liquidity by RBI through OMO purchase of Government Securities, inflation trajectory, Government’s revenue collections, global yield movement and investor appetite.

Outlook​

Even though 4QFY18 earnings was in line with expectations; the outlook for FY19 remains strong on a lower base of FY18. Keeping in view India’s weakening macros but improving micros, we prefer retail banks, consumer staples and discretionary sectors. We see pick-up in consumer spending, rural demand and repair of banks’ balance sheets as the key positives for markets. While in the near-term we expect markets to remain range bound, medium term performance to be driven by improving corporate earnings, normalcy of monsoons and steady domestic flows.​​

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