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Market Review

​​​​​​​​​​​​​​OVERVIEW OF MARKET

Nifty gained ~5% during the month as crude oil prices corrected sharply, currency strengthened and trade tension between US and China abated. The US has postponed its decision to increase import duty on Chinese imports for 90 days as the latter has agreed to certain concessions. Among the sectors, Banks, FMCG and Auto outperformed while Pharma, Metals and IT underperformed the Nifty during the month. FIIs turned net buyers to the tune of about Rs 62bn, while domestic mutual funds bought around Rs 25bn of equity during the month.

The Index of Industrial Production grew by 4.5% in September compared to 4.7% in August. CPI inflation cooled to 3.3% in October against 3.7% in September. WPI inflation inched up to 5.3% in October as against 5.1% in September.

The Bond market rallied during the month of November 2018. The benchmark 10 year G-Sec (7.17% GOI 2028) closed 24bp lower at 7.61% against 7.85% last month.

Outlook

Sharp fall in crude (~22%) and strong pull back in Indian currency (~6% appreciation) has led to sharp rally in Indian Government bonds (~24 bps fall). Further, benign consumer price index at 3.3% for the month of Nov led by lower food price and subdued growth in the Indian Economy (GDP at 7.1% vs 7.4% expected for Q2 FY 2019) is also positive for the bond market. RBI MPC members are likely to factor all these developments and may revise their communication in the upcoming review. Going forward, the fixed income market is likely to be driven by global and domestic macro-economic conditions.

Outlook​

Easing in China-US trade issues and sharp fall in crude oil prices have helped improve investment sentiment across emerging markets. However the uncertainty surrounding upcoming state and general elections and the government’s action towards fiscal deficit targeting remain. In this backdrop we believe, IT, consumer, capital goods and corporate banks stocks offer a good means to build core portfolio; additionally, we are looking at quality stocks with supportive valuations. With a correction in oil prices and some stability in INR, we expect improvement in earnings trajectory. Over medium term, the performance of equity market should remain a function of strength of economic recovery (which looks good so far), political outcomes, trade tensions, oil prices and currency. Pick-up in consumer spending, rural demand and improvement of banks’ balance sheets are the key long-term positives for markets.

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