The Sensex and the Nifty have rallied 27% and 28% respectively year to date due to factors such as strong macro fundamentals, political stability and global liquidity. Some of the main sector specific positive developments that lead to the indices rallying sharply includes the push in infrastructure spending and recapitalization of banks by the Government till now in 2017.
Strong Macro Fundamentals
In June 2017 inflation fell to record low of 1.54% lowest since 1999. In August policy meeting falling inflation prompted RBI to cut its benchmark rate by 25 bps which led to a rally in the benchmark equity indices.
Surge in Domestic Inflows and Global liquidity
Mutual funds as an asset class seem to be entering the maturity phase in India with broad- basing of investors and geographical spread. Assets under management (AUM) increased from Rs 17.55 trillion in March 2017 to Rs 20.40 trillion in September 2017. Growing participation from retail investors, especially from smaller towns and huge inflows in equity schemes have also contributed to the upside in the benchmark indices.
BJP’s massive win in the Uttar Pradesh elections, the result of which was declared on 11th March 2017, fueled a massive stock market rally driven by foreign investors. The political situation has become stronger in the country as the ruling party at the centre, BJP, won the key Gujarat and U.P. State Election, which was seen as an affirmation of Prime Minister Modi’s policies and positive for capital flows. The ruling Narendra Modi government is expected to regain power in 2019 general elections, leading to low political risk for the economy.
The Cabinet gave the go ahead to highway projects worth about Rs 7 trillion for development of over 80,000 km of highways including Bharatmala project in the next five years. Bharatmala is a mega plan of the government and the second-largest highways project after NHDP that saw development of about 50,000 km, and aims at improving connectivity in border and other areas.
PSU bank stocks surged on the bourses to the government’s decision to infuse capital in them. The Centre announced Rs 2.11 trillion recapitalization plan for public sector banks spread over two years in a bid to shore up their finances, boost private investment and revive the economy.
Implementation of the Goods and Services Tax (GST) regime has laid the foundation for strong economic growth for India Incorporation. If the macroeconomic picture remains stable or shows any improvement in the time to come the rally in the benchmark indices should continue in the year 2018 as well.
For the Week Ahead
Macroeconomic data, trend in global markets, investment by foreign portfolio investors (FPIs) and domestic institutional investors (DIIs), the movement of rupee against the dollar and crude oil price movement will dictate trend on the bourses in the truncated week ahead. The stock markets remain closed on Monday, 25 December 2017, on account of Christmas holiday.
Among macro economic data, India’s infrastructure output data for the month of November 2017 will be released on Friday, 29 December 2017. Infrastructure output in India increased 4.7% year-on-year in October of 2017, following a downwardly revised 4.7% rise in the previous month.
The proceedings of the ongoing winter session of the Parliament will be closely watched. The government has a slew of important Bills on its agenda in this session. The Financial Resolution and Deposit Insurance Bill, 2017 is slated to come up in this session of Parliament. This Bill aims to limit the impact of the failure of financial institutions like banks and NBFCs. It has also been cleared by the standing committee. The winter session concludes on 5 January 2018.
On the global front, in the US, the House of Representatives on Wednesday, 20 December 2017 passed a historic tax bill, which they voted on for the second time due to a technical irregularity the day before. The bill includes a reduction in the corporate tax rate from 35% to 21%.
China’s central bank raised interest rates on reverse repurchase agreements, or reverse repos, used for open market operations by 5 basis points for the 14-day tenor, following upward adjustments on other tenors last week.
Japan’s government revised up its growth projections for the current and next fiscal years, forecasting the economy to expand 1.9% and 1.8% respectively on the back of steady improvement in domestic demand.
German business confidence fell unexpectedly in December after hitting an all-time high in the previous month, a survey showed. The Munich-based Ifo economic institute said its business climate index, based on a monthly survey of some 7,000 firms, edged down to 117.2 from an upwardly revised reading of 117.6 in November which was the highest on record.
Confidence in France’s manufacturing sector fell in December, statistics agency Insee said. Business confidence in manufacturing declined in December to 112 points from 113 points in November, in line with economists’ expectations.
The stock market rallied in the week ended Friday, 22 December 2017, on the back of the Bharatiya Janata Party’s (BJP) win in the recently concluded assembly elections in Gujarat and Himachal Pradesh. The barometer index, the S&P BSE Sensex and the Nifty 50 index closed at record highs. The Sensex surged 477.33 points, or 1.42%, to settle at 33,940.30. The Nifty advanced 159.75 points, or 1.54%, to settle at 10,493.
Shares of kraft paper manufacturer Astron Paper & Board Mill will get listed on the bourses next week. The initial public offering (IPO) of the company was oversubscribed 243.29 times. The company had fixed the price band of Rs 45 to Rs 50 per equity share.
ICICI Bank surged 4.27% at Rs 316.40. The bank’s subsidiary ICICI Securities has filed a draft red herring prospectus with Securities and Exchange Board of India (Sebi) for a public offer of up to 6.44 crore equity shares of face value of Rs 5 each of ICICI Securities, representing approximately 20% of its equity share capital as on date, for cash through an offer for sale (OFS) of up to 6.44 crore equity shares by ICICI Bank.
Our model Twelve Stock “Strong Core” Portfolio has given a one-year return of 66% and has outperformed the benchmark Sensex by 38%.
On a weekly basis, Twelve Stock “Strong Core” Portfolio has gained by 3.70% in value and the Benchmark BSE Sensex has gained by 1.43%. The Portfolio outperformed the benchmark by 2.27%.
The Nineteen Stock “Strong Core” Portfolio has given a one-year return of 63% and has outperformed the benchmark BSE 500 by 23%.
On a weekly basis, the Nineteen Stock “Strong Core” Portfolio has gained by 1.56% in value and the Benchmark BSE 500 has gained 2.21%. The Portfolio underperformed the benchmark by 0.65%.
Our Shariah Twelve Stock “Strong Core” Portfolio has given one-year return of 81% and has outperformed the benchmark by 50%.
On a weekly basis, Shariah Twelve Stock “Strong Core” Portfolio has gained by 3.70% in value and the Benchmark Sensex has gained by 1.43%. The Portfolio outperformed the benchmark by 2.27%.
On a weekly basis, Ten Stock “Strong Core” Growth Portfolio has gained by 4.67% in value and the Benchmark Sensex has gained by 1.43%. The Portfolio outperformed the benchmark by 3.24%.
Our Global Ten Stock “Strong Core” Portfolio has given one-year return of 42% and has outperformed the benchmark S&P 500 index by 24%.
On a weekly basis, Global Ten Stock “Strong Core” Portfolio has declined by 0.77% in value and the Benchmark S&P 500 has gained by 0.27%. The Portfolio underperformed the benchmark by 1.04%.
Industry and Stock Specific trends
The sectoral indices closed in positive territory last week. The S&P Auto, Bankex, Oil & Gas, PSU and IT index rose by 4%, 0.84%, 1.3%, 2.22% and 2.18% respectively in last week.
Indian rupee appreciated marginally by 0.08% against the USD, USD/INR pair closed at 64.04.