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Market Review

​​​​​​​​​​​​​​​​​​​​OVERVIEW OF MARKET

Nifty recorded sharp gains of ~4% during the month led by measures announced by the Finance Ministry to boost the economy. Among the measures were a reduction in corporate tax rate(excluding cess & surcharge) from 30% to 22% and a concessional rate of tax at 15% for domestic manufacturing companies. On the International front, a temporary surge in crude price to ~$72 was caused due to drone attacks on Saudi Arabia’s oil plants. Crude eventually closed at ~$61 levels after Saudi Aramco announced that they would ramp up production to pre-strike levels by the end of the month. Further, evolving events around US-China trade talks and policy rate cut by the US Federal Reserve eased global sentiment. Among the sectors, Energy, Infra and Auto outperformed while Pharma and IT underperformed the Nifty during the month. FIIs turned net buyers to the tune of about Rs 70bn, while domestic mutual funds bought Rs 105bn of equity during the month.

The Index of Industrial Production reported a growth of 4.3% in July compared to a growth of 1.1% in June. CPI and WPI inflation remained stable at 3.2% and 1.1% respectively for the month of August.

The Bond yields rose during the month of September 2019. The 10 year benchmark G-Sec (7.26% GOI 2029) closed 14 bps higher at 6.70% against 6.56% last month.

Outlook

Corporate tax reduction announced by the Government to support growth has impacted the market sentiment. However, Government continues to show its commitment to remain in the fiscal consolidation path. This has been indicated through unchanged second half borrowing calendar. Besides, growth inflation dynamics are likely to remain positive for the market. With softer global rate environment, probable further monetary easing by RBI augurs well for the market in the near term. However, over the medium term, possibility of additional Government borrowing, crude price movement, and FII flows are the key factors to watch.

Outlook​

Lower corporate tax rate is likely to improve profitability for most domestic companies and may facilitate growth through capex cycle revival. Higher corporate profitability is expected to have a multiplier effect on the economy, although it may largely depend on the nature of pass through. Consumer demand may witness an improvement in the near term if the pass through is in the form of lower prices to customers or higher wages/ bonuses to employees. Further, moving to corporate tax parity with other Asian peers would make India an attractive manufacturing alternative on a global scale. Given the nature of reforms, stocks with strong business models with supportive cash flows offer a good opportunity to build a core portfolio.​​

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