The last few weeks have seen equity markets turning volatile on the back of both domestic and global factors. The INR and 10 year government bond too have come under pressure. In this period we saw our portfolio stocks showing wide trends with a few falling sharply and a few rising as well.
We have covered the reasons for the market volatility in our weekly market notes and have also covered the 4th quarter results of companies. Our analysts attend meets and con calls of the companies that we hold in our portfolios and we are constantly reviewing company performance as also the overall market environment.
Rest assured, we worry about your portfolios and will make alterations if required.
We are really not too worried about the recent correction in stocks as our overall micro and macro trackers point to a better corporate and economic performance. Click here for our analysis of the domestic and global economy.
Fall in prices of stocks that are fundamentally strong and showing growth traction is an opportunity to buy at lower levels. However it is important to keep stock weights in the portfolio as recommended as weights are the primary drivers of portfolio performance.
We are always there to answer your queries and address your concerns.
The Sensex and the Nifty fell by 2% each in the last week due to several factors, which include political uncertainty (Karnataka Elections), domestic macro-economic data, global cues and FIIs selling pressure. The Sensex and Nifty are trading at a trailing price to earnings ratio of 23.76 and 26 respectively.
S&P BSE midcap index has underperformed the Sensex by 2% last week due to heavy FIIs selling pressure despite reporting better than expected Q4Fy18 results. Rise in UST yields & trade war tensions had led the foreign investors pulling money from Indian markets. FIIs/FPIs have sold Indian equity shares worth Rs. 55.5 billion in the month of April 2018 and sold shares worth Rs. 48 billion till now in this month.
Mid and small cap stocks have come under selling pressure due to investors over expectations, short term holding period and excessive weights. Companies that have fundamental issues with their business prospects will continue to see strong selling while companies that have temporary issues but are overcoming them will see buying at lower levels.
We also see positives being ignored for now. Four strong positive factors include,
- Companies have shrugged off the GST & demonetisation effect which had hit them hard last year. Quarterly results of Fy19 are expected to be better than FY18 due to low base effect.
- India is a strong attraction for global companies as seen by the Walmart – Flipkart deal at USD 16 billion. Global companies are also bidding for assets placed under the NCLT, indicating strong interest in infrastructure assets in India. Closure of 3 NCLT cases, including Bhushan Steel, ElectroSteel Casting and Binani Cement suggests that there is demand for stressed assets on back of improving prospects for cyclical industries.
- Easing trade war tension between US and China will improve market sentiment and could push Sensex & Nifty to higher levels.
- Ongoing strong reporting of Q4Fy18 results by Indian companies will bring down the trailing price to earning ratio of Sensex & Nifty, which would attract foreign investors.
Q4Fy18 earnings had kicked off with TCS reporting 8.2% growth in net sales and has given announcement on massive deals, which has increased the expectations for Fy19 revenue growth. However, Infosys reported 7.2% growth in net sales and gave tepid guidance for Fy19. BSE IT index has outperformed Sensex by 2% last week. Surge in TCS (jumped by 3.5% in last week) share price has helped the IT index to outperform broader markets. Depreciating INR acts like a catalyst to the IT companies top-line. INR depreciated by 3% against USD in the last 1 month.
FMCG giant, Hindustan Unilever reported 14% jump in net profit due to increase in r consumption and normalisation of trade conditions after the debut of GST. Rural demand is witnessing higher growth than urban areas, which shows higher consumer confidence in rural areas. Rural has grown ahead of urban even for peers like Dabur India Ltd and Godrej Consumer Products Ltd (GCPL) who announced their earnings earlier this month. Dabur, rural demand growth at 9% outpaced urban growth at about 7%. GCPL, rural grew at 7-8% compared to its overall domestic volume growth of 6%. Consumer companies are optimistic on seeing consumption recovery with volume growth in double digits in 2019. This will also help the companies in retail space to post strong results going ahead. S&P BSE FMCG index has outperformed Sensex by 2% in the last week.
Airline companies current problem is higher crude oil prices, fuel cost eat in to a major portion of revenues. Interglobe Aviation & SpiceJet, which are profitable airline companies, have posted weak EBITA margins. Interglobe Aviation has witnessed fall in yields for the Q4Fy18 indicating pricing pressure. However, as per the data of Airport Authority of India, passenger growth has witnessed 26% jump in April 2018. All airline companies are running at close to 90% capacity utilisation as on April 2018.
The pricing pressure in U.S. market is weighing on pharma companies financial performance and making it tough for them to protect market share. S&P BSE healthcare index underperformed the Sensex by 7% in the last week. However, companies with less exposure to U.S. markets are expected to have less better revenue growth.