September turned out to be a volatile month for Indian financial markets including equities. S&P BSE Sensex fell by 6.21%. This was the highest monthly fall in the calendar year so far. Mid-cap and small-cap stocks were hammered down. S&P BSE mid cap index declines 12.44% while BSE small cap index was down 15.95% in September.
IT and FMCG were the two sectors which had positive returns during the month of September. Continuing currency depreciation was a boon for exporters, including IT services firms. Among the sectors that saw maximum loss, real estate, telecom and banks were prominent. Markets were complacent for large parts of the year, as measured by VIX. This rose in the month of September as in early 2 months of 2018.
FIIs sold stocks heavily in the month of September. Their sales were $1.31 billion for the month. So far in the current year, FIIs have offloaded stocks worth $2 billion. Domestic institutions were buyers to the tune of $1.3 billion during the month. Of this, $1.1 billion came from mutual funds while insurers brought in $630 million. In fact, $12.2 billion has been pumped into equities by domestic institutions so far in the current year.
Turbulent financial markets
The state of financial markets in India also was tumultuous during the month of September. It started with the default on interest payments by ILFS to some its creditors. This led to downgrading of its rating by several notches overnight. Many mutual funds were holding ILFS papers in their debt schemes—liquid as well as longer term schemes. They were forced to take a writedown. Subsequent to this, there was news of a mutual fund selling paper of another NBFC at a very high yield (meaning low price). This set off rumours in debt/equity markets that there could be defaults/ liquidity crunch. Many NBFC stocks saw their stock price crashing.
The contagion spread to stocks of other sectors as well. Many stocks which were quoting at rich valuations witnessed a larger decline. Sebi announced a number of measures in investors’ interest, including banning of upfront commission by asset management companies. Regulatory risks came to the fore in the month and spooked investor wealth in those stocks.
On the macro-economic front, crude oil price surpassed $80/bbl as supply was constrained. Sanctions on Iran led to surge in oil. This doesn’t bode well for India given the dependence on oil imports. Inflation was well contained at 3.7% for the month of August. RBI’s monetary policy in early part of October has maintained status quo in interest rates. India’s macro situation has worsened even as micro (companies’ level) continues to improve.
There has been a good correction in stock prices and the same has been continuing for some time. Many stocks which looked highly valued now seem to have come within reach. We are
likely to find new stocks for our portfolio and cash level can fall further.
Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many nations. Investors can expect decent return from equities over a long period in future. Investors should take advantage of recent fall in stock markets and put more money in equities.
By- Atul Kumar. The writer is head of equity funds, Quantum AMC