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  1. Equity outlook: Rising crude prices, rupee depreciation are concerns in the near term

Equity outlook: Rising crude prices, rupee depreciation are concerns in the near term

During the month of August, S&P BSE Sensex rose by 2.88% on total return basis. Mid-cap and small-cap indices which were under pressure for the past six months recovered well. S&P BSE Midcap index increased 5.62% while S&P BSE Smallcap index appreciated 3.84% in August.

Most emerging markets have also seen sell-off in equity markets as well as currency recently.

Atul Kumar

During the month of August, S&P BSE Sensex rose by 2.88% on total return basis. Mid-cap and small-cap indices which were under pressure for the past six months recovered well. S&P BSE Midcap index increased 5.62% while S&P BSE Smallcap index appreciated 3.84% in August. For the eight months of 2018, S&P BSE Sensex has risen 14.55%. In comparison, S&P BSE Smallcap and S&P BSE Midcap have fallen 10.11% and 4.58%, respectively. The rout in earlier months continues to hurt investors in mid/small stocks.

Healthcare stocks topped gains among sectors, providing double digit gain of 12.38% in the month gone by. Apart from investors correcting under-ownership in sector, rupee depreciation works in its favour. Metal and power were other prominent sectors that gave superior return. Telecom, oil and gas and automobile appreciated less than the index.

During the month of August, S&P BSE Sensex rose by 2.88% on total return basis. Mid-cap and small-cap indices which were under pressure for the past six months recovered well. S&P BSE Midcap index increased 5.62% while S&P BSE Smallcap index appreciated 3.84% in August. For the eight months of 2018, S&P BSE Sensex has risen 14.55%. In comparison, S&P BSE Smallcap and S&P BSE Midcap have fallen 10.11% and 4.58%, respectively. The rout in earlier months continues to hurt investors in mid/small stocks.

Healthcare stocks topped gains among sectors, providing double digit gain of 12.38% in the month gone by. Apart from investors correcting under-ownership in sector, rupee depreciation works in its favour. Metal and power were other prominent sectors that gave superior return. Telecom, oil and gas and automobile appreciated less than the index.

FII net sellers

FIIs were net sellers during the current month. They sold stocks worth $278 million.So far in the year 2018, FIIs have been sellers of $692 million. Domestic institutions saw net inflow of $403 million during the month. While mutual funds contributed $546 million to this, insurers were sellers to the extent of $143 million. So far, domestic institutional investors (DIIs) have invested $10.5 billion in eight months. The Indian rupee depreciated 3.57% against the US dollar. This follows many emerging market currencies taking a hit, while the US dollar has been strengthening.

Sell-off in emerging markets

Most emerging markets have also seen sell-off in equity markets as well as currency recently. India’s equity markets have been relatively stable, with domestic retail investors showing faith and shoveling money into mutual funds. Rise in US interest rates further could cause more volatility and lead to fall in equity prices in emerging markets including India.

Among current events, GDP data was released for first quarter of the fiscal year 2019. It showed that GDP growth was very strong at 8.2%, much higher than 7.4% predicted by economists. Preceding this, there was also release of GDP data of new series for previous years to provide greater transparency. India adopted a new series in 2015 with 2011-12 as base year. New series data for older years points that India grew faster in years before fiscal 2012 than reported by old series.

Monsoon in India is on its last legs and is likely to withdraw in the coming days. There is significant rainfall shortage in Eastern India (27%) while other regions have fared well. Barring a few sectors, valuations of stocks are at high levels. While share prices have run up, earning of companies are picking up now only after a four-year hiatus. High level of liquidity globally has driven up stock prices. With the Lok Sabha elections due next year, stock markets could be spooked by political uncertainty.

Rising crude prices, rupee depreciation are macroeconomic concerns in the near term. Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many nations. Investors can expect decent returns from equities over a long period in future. Investors at this point should continue to invest in equities through SIPs.

The writer is head, Equity Funds,

Quantum Mutual Fund

 

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