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Market Review


The Union Budget for FY19 was directed at domestic, especially rural consumption with supportive measures like increasing MSP and higher allocation to the rural economy. However, long term capital gains on equity shares and mutual funds at the rate of 10% has seen a selloff in equity markets. Crude closed ~3% higher during the month at $69.1 (up ~31% FYTD18) as OPEC agreed to extend their production cut by another year. Further, IT and Banking sectors’ outperformed while Telecom, Auto and Power underperformed the Nifty. FIIs bought approximately Rs 13,490 cr, while domestic mutual funds bought around Rs 5,109 cr of equity during the month.

The Index of Industrial Production accelerated to 8.4% in November compared to 2.2% in October. CPI inflation increased to 5.2% in December against 4.9% in November. WPI inflation cooled to 3.6% in December from 3.9% in November.

The Bond market yields rose during the month of January 2018. The benchmark 10 year G-Sec (6.79% GOI 2027) closed 27bp higher at 7.60% against 7.33% last month. The new benchmark 10 year G-Sec (7.17% GOI 2028) closed at 7.43%.


In budget, government continued on the fiscal consolidation path (targeting GFD/GDP of 3.3%), maintained a largely stable taxation regime and raised the spending on the infrastructure and rural economy. Bond market will closely watch: 1) fiscal impact of mega healthcare scheme announced in the budget, 2) uptick in GST revenue and 3) possible downturn in inflation from 2HCY18. Additionally, interest rates would be effected by demand-supply of bonds through auction and the FII flows that have been strong so far. For the near future the interest rates are expected to be at the current level or lower than the present level.


Earnings season so far has been better than expected especially for the consumer and atomobile space. Broader macroeconomic theme remains unchanged with consumption driving pick-up in growth. Improvement in capacity utilization and better earnings in FY19 may improve the private investment environment going forward. Pick-up in economic growth and rising commodity prices augurs well for corporate earnings. Going ahead, liquidity and earnings trajectory will be the key determinant of the market in near term. From portfolio strategy perspective, we prefer stocks with earning momentum and reasonable valuations.

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