Sensex and Nifty responded to positive results in the French Election Results, rallying by close to 1%. The indices are expected to touch record highs this week as markets favour risk in the face of improved global economic sentiment.
European shares rose sharply on Monday as risk assets staged a powerful rally after centrist Emmanuel Macron won the first voting round of France’s presidential election, reducing risks of more political stress for the Eurozone. Currently CAC 40 index is up by 4.46%, or 220 points and is trading at 5279. FTSE index is up by 1.81%, or 128 points and is currently trading at 7242. In currency markets, Euro witnessed a sharp upward move by close to 2% against USD, 1% against Pound and 2.2% against Yen. Currently EUR/USD, EUR/JPY and EUR/GBP pairs are trading at 1.0857, 119.59 and 0.8469 respectively. In bond markets, 10- year French Government bond yield fell by 10bps to 0.770% while safe haven German bund yield rose by 9bps to 0.34%.
France is one of the largest and most significant economies in the European Union. The French economy represents approximately 15% of the European GDP. Second round of voting results will be announced on 7th May 2017.
Our model Twelve Stock Retirement Portfolio has given a one-year return of 42% and has outperformed the benchmark Sensex by 29%.
On a weekly basis, Twelve Stock Portfolio has gained 2.11% in value and the Benchmark BSE Sensex has lost by 0.16%. The Portfolio outperformed the benchmark by 2.27%.
The Nineteen Stock Portfolio has given a one-year return of 61% and has outperformed the benchmark BSE 500 by 39%.
On a weekly basis, the Nineteen Stock Portfolio has gained 1.82% in value and the Benchmark BSE 500 has gained 0.14%. The Portfolio outperformed the benchmark by 1.68%.
We had constructed the India 2019 Equity Portfolio on 5th April 2017, benchmarked to the BSE Sensex. The portfolio has given 13% return since inception and has outperformed its benchmark, the Sensex by 14%.
On a weekly basis, Shariah Twelve Stock Model Retirement Portfolio has gained 3% in value and the Benchmark Sensex has lost by 0.33%. The Portfolio outperformed the benchmark by 3.33%.
Our Global Ten Stock Model Retirement Portfolio has given one-year return of 25% and has outperformed the benchmark S&P 500 index by 13%.
On a weekly basis, Global Ten Stock Model Retirement Portfolio has gained 2.24% in value and the Benchmark S&P 500 has gained by 0.82%. The Portfolio outperformed the benchmark by 1.42%.
Get 2x Sensex Returns from Our “India 2019 Equity Portfolio”
The Sensex can potentially return 35% over the next two years until 2019 and we have constructed an Equity Portfolio of 10 stocks that can potentially deliver 2x Sensex returns. India 2019 Equity Portfolio is for Subscribers wanting to participate in the India story based on economic reforms and political stability if the Modi government is reelected to run the Central Government in elections 2019.
The next two years is likely to see Indian equity markets cross many peaks as both the global economy and Indian economy are seeing signs of coming out of a long slump post 2008 financial crisis. India’s political climate looks strong with the Modi led BJP government sweeping state polls in key states such as UP. Indian equity markets will start playing for 2019 re-election of the Modi Government at the Centre. Click here for our presentation on Sensex at 40k in 2019.
The main driver of the benchmark indices the Sensex and the Nifty is the weighted average earnings growth for the companies in the respective indices. The Sensex is expected to reach levels of 40,000 offering an upside of 39% till the year 2019. The new portfolio is designed to capture the potential growth from the sectors that are expected to grow faster as compared to the benchmark indices of Sensex and Nifty.
Sectors such as Consumer Durables, Automobiles, Microfinance, Financial Services, Aviation, Infrastructure, Telecom Infrastructure and Retail are expected to witness higher growth than other industries or sectors in terms of revenue and profit.The business opportunity for each sector gives the rationale behind selecting these sectors over others for investment purpose in the new portfolio. The growth in terms of revenue and profitability for the selected sectors is explained below.
Retail industry in India is expected to grow to USD 1.3 trillion by 2020, registering a Compound Annual Growth Rate (CAGR) of 16.7% over 2015-20. The country is among the highest in the world in terms of per capita retail store availability. India’s retail sector is experiencing exponential growth, with retail development taking place not just in major cities and metros, but also in Tier-II and Tier-III cities. Healthy economic growth, changing demographic profile, increasing disposable incomes, urbanization, changing consumer tastes and preferences are the other factors driving growth in the organized retail market in India.
Automobiles and Consumer Durables
The 7th Pay Commission, higher rural income on government’s budget 2017-18 thrust on the rural economy are expected to prop up demand for Automobiles and Consumer Durables. The tax cut of 5% for individuals having income in the range of Rs 2.5 lakh to Rs 5 lakh would directly increase the buying power of middle class consumers. This move is expected to give additional thrust to buy automobiles in the rural as well as the urban areas.
The allocation for Roads and highways has increased to Rs.649 billion for FY 2017-18 from the earlier FY 2016-17 allocation of Rs.524.47 billion.The increase in allocation for the infrastructure sector would mean that companies in the public private partnership space would receive more orders from the Government. Companies that build roads and highways would be big beneficiaries as increase in their order book would eventually translate into higher revenues and profitability for them.
Mobile internet penetration is at 35% and smart phone user’s penetration is at 29% in India and it is estimated to reach 60% by the end of 2019. With increase in number of smart phones, data consumption will lead to higher demand for optic fibres across India. Indian telecom industry has seen incredible growth in terms of expansion of 3G network capacity and rollout of 4G/LTE. Tower capacity in India is around 350000 – 400000 units out of which 10% of them are fiberized. It is expected fiberization will increase to a level of 60% – 70% of total towers as telecom players are likely to set up infrastructure and develop technology in line with Rjio’s digital set up. Next technological upgrade in telecom industry would be 5G internet services, to enable this services 100% fiberization is required and they are likely to get started by 2020 in India.
India’s civil aviation industry is on a high-growth trajectory and aims to become the third-largest aviation market by 2020 and the largest by 2030. India is the ninth-largest civil aviation market in the world, with a market size of around USD 16 billion. India is expected to become the third largest aviation market by 2020. In FY16, the Indian domestic aviation market grew at 21.6%. The growth is attributed to the large and growing middle-class population, rapid economic growth, increased spending and low aircraft penetration levels in the country. India has only 150 million passenger trips a year as compared to China’s 450 million and the US’ 800 million. According to the latest data from the Directorate General of Civil Aviation (DGCA), passenger traffic during January-November 2016 zoomed by 23.10% to 90.36 million.
Microfinance and Financial Services
The microfinance sector, which is seen as a vehicle of financial inclusion, has seen a boom over the past year as government has laid more emphasis on financial inclusion. The sector is expected to grow robustly in the next few years as large players would consolidate their position in the market.
India is today one of the most vibrant global economies, on the back of robust banking and insurance sectors. The country is projected to become the fifth largest banking sector globally by 2020. The report also expects bank credit to grow at a Compound Annual Growth Rate (CAGR) of 17 per cent in the medium term leading to better credit penetration. Life Insurance Council, the industry body of life insurers in the country also projects a CAGR of 12–15 per cent over the next few years for the financial services segment.
The India 2019 equity portfolio consists of ten fundamentally strong companies with some of them being market leaders in the above mentioned high growth sectors. The India 2019 equity portfolio consists of ten stocks which are expected to have earnings growth significantly higher than those in the Sensex and the Nifty. These companies in the new portfolio have good fundamentals in terms of growth in revenues and profitability along with higher than industry average ROE and RoCE. The cashflows for most of the companies are in the positive territory while those with a negative cashflow have lot of investment going in them to generate value for the stakeholders in the long run.
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The Markit US Manufacturing PMI fell to 52.8 in April 2017 from 53.3 in March 2017 and well below market expectations of 53.5. It is the lowest reading since September 2016, indicating another slowdown in manufacturing growth from the near two-year highs seen in January 2017, mainly due slower expansion in output and new orders.
The number of Americans filing for unemployment benefits increased by 10,000 to 244,000 in the week ended 15th April 2017 from the previous week’s level of 234,000 and above market expectations of 242,000.
IHS Markit Economics composite PMI reading of Eurozone growth rose to 56.7 in April 2017, up from 56.4 in March 2017. Markit’s measure of manufacturing activity rose to 58.0, a 72-month high (up from 57.5 in March 2017) while the pace of activity in the services sector jumped to 56.2 from a previous reading of 56.0. The figures indicate first quarter GDP growth of around 0.7%
Japan posted a JPY 614.7 billion trade surplus in March 2017, trade surplus fell by 21% (Y-o-Y) from JPY 744.9 billion surplus seen a year earlier but above market expectations of a JPY 575.8 billion surplus, as exports rose less than imports. Exports increased by 12% (Y-o-Y) to JPY 7229 billion, compared to a 11% (Y-o-Y) gain in the month earlier while market expected a 6.7% rise. Imports jumped 15.8% (Y-o-Y) to JPY 6,614billion following a 1.2% growth in the prior month and more than market expectations of a 10.4% growth. In February 2017, the trade surplus came in at JPY 813.4 billion.
The Chinese economy expanded 6.9% (Y-o-Y) in the first quarter of 2017, compared to a 6.8% growth in the fourth quarter of 2016 and slightly above market consensus of a 6.8% growth. It was the strongest expansion since second quarter of 2015, supported by faster rise in industrial output, retail sales and fixed-asset investment while fiscal spending surged. For 2017, the Chinese government expects the economy to grow by around 6.5% compared to a 6.7% expansion in 2016, which was the slowest growth in the last 26 years.
Industrial production in China rose 7.6% (Y-o-Y) in March 2017, compared to a 6.6% rise in January-February of 2017 and beating market expectations of a 6.3% rise.
Stocks of crude oil in the US fell by 1.034 million barrels in the week ended 14th April 2017, following a 2.166 million decrease in the previous period and compared to market expectations of a 1.47 million decline.
Wall Street closed modestly lower on 21st April 2017. Industrial and financial stocks rallied as geopolitical concerns eased and investors shifted their attention to President Trump’s upcoming tax-reform plan which will be released during this week. On weekly basis, Dow jones rose by 0.46%, S&P 500 rose by 0.82% and Nasdaq rose by 1.81%.
Oil prices fell sharply on 21st April 2017 on concerns over rising US crude production starting this week and that OPEC output cut deal will help to stabilize the market. Brent crude oil dropped 1.9% to USD 51.9 per barrel.
CAC 40 fell 27 points to 5,050 on 21st April 2017, following a suspected terrorist attack in Paris, just a day ahead of the first round of the French presidential elections.
The Sensex and the Nifty lost 0.34% and 0.33% respectively in the last week.
Indian wholesale prices (WPI) rose by 5.70% (Y-o-Y) in March 2017, following a 6.55% gain in February 2017 and below market estimates of a 5.98% rise. A slowdown in cost of manufactured products offset a faster increase in cost of food and petrol.
According to IMF, India’s economic growth will be 6.8% in FY17 against the official advance estimates of 7.1% due to demonetisation, Retaining its growth forecast of 7.2% for India for the fiscal year, the IMF estimated that India would grow at 7.7% in 2018-19 and said that 8% growth in the medium-term is within reach.
The trade deficit in India increased to USD 10.4 billion in March 2017 from a USD 4.4 billion gap a year earlier and market expectations of a USD 8.4 billion shortfall. Imports surged 45% (Y-o-Y) to USD 39.7 billion. It is the highest value since November 2014, boosted by a 101% rise in oil and a 329% jump in gold purchases. Exports jumped 27.6% (Y-o-Y) to USD 29.2 billion, reaching the highest value since March 2014.