Large Cap, Multi cap, Small Cap and Mid Cap funds have outperformed BSE S&P Sensex in the month of April 2019. Strong FII flows into fundamentally strong stocks helped Mid Cap & Small Cap stocks to outperform markets with wider margins.
Table 1 gives the average returns of all funds and outperformance with respect to Sensex.
Markets are bracing for turbulence in the days to come, as uncertainty over election outcome and rising crude oil prices loom over economy growth. Nifty VIX surged by 21% during last month, which indicates market participants are expecting volatile trading sessions going ahead. However, long term investors should not be unduly worried about corrections, which will happen time to time. As long as they stick to portfolio weights and are convinced on a company’s potential, corrections can be bought into selectively. It is important to keep stock weights in the portfolio as recommended as weights are the primary drivers of portfolio performance.
On the global front, loose monetary and fiscal policies should lower risk aversion. The risk of an escalation of the U.S.-China trade war and prospects of Britain exiting the European Union without a deal, which were two of the more prominent threats that initially drove the current economic slowdown have eased. The incoming macro-economic data from major developed countries is not as rosy as it was expected to be, which is hurting global investors sentiment. However, American Tech companies have reported another set of record quarterly profits but have given lower revenue guidance as they could witness temporary slow-down in sales across the globe.
The IMF downgraded its forecast for growth this year in the United States, Europe, Japan and the world overall. Global growth is expected to decelerate from 3.6% last year to 3.3% in 2019, tied with growth witnessed in 2016 and the weakest performance since the recession year 2009.
FIIs/FPIs have bought Indian equity shares worth Rs. 339 billion in March 2019 and Rs. 210 billion worth shares in April 2019.
Indian Markets
India’s current account deficit widened to USD 16.9 billion, or 2.5% of the GDP in the last three months of 2018 from USD 13.7 billion or 2.1% of the GDP a year earlier. The goods deficit increased to USD 49.5 billion from USD 44 billion a year ago as imports rose 9% while exports went up at a softer 7.2% rate.
India’s fiscal deficit widened to Rs. 8.52 trillion in April 2018-February 2019 from Rs. 7.16 trillion in the same period of the previous fiscal year. Total expenditures jumped 9.5% to Rs. 21.89 trillion and revenues rose at a slower 4.2% to Rs. 13.37 trillion. The budget gap is equivalent to 134.2% of the government’s target for the whole financial year, compared with 120.3% a year ago.
The Nikkei India Services PMI dropped to 52 levels in March 2019 from 52.5 levels witnessed in the previous month and below market consensus of 52.5. The latest reading pointed to the weakest expansion in the services sector since September 2018, as output growth eased to a six-month low mainly driven by a slowdown in new business.
The Nikkei India Manufacturing PMI dropped to a six-month low of 52.6 levels in March 2019 from 54.3 levels in the preceding month and missing market expectations of 53.9. Both output and new orders expanded the least in six months and new export order growth eased.
Industrial production in India rose 0.1% (Y-o-Y) in February 2019, following a downwardly revised 1.4% increase in the previous month and below market expectations of a 2% gain.
India’s retail price inflation rate rose to a five-month high of 2.86% (Y-o-Y) in March 2019 from 2.57% in the previous month, slightly above market expectations of 2.8%. Food prices rose for the first time in six months.
Global Economy
The US economy grew by an annualized 3.2% (Y-o-Y) during Q1Fy19, easily beating market expectations of 2% and following a 2.2% expansion in the previous three-month period. The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), non-residential fixed investment, exports, private inventory investment, and federal government spending.
Nonfarm payrolls in the US increased by 196,000 in March 2019, following an upwardly revised 33,000 rise in February 2019 and beating market expectations of 180,000. Notable job gains were seen in health care and in professional and technical services. Employment growth averaged 180,000 per month in the first quarter of 2019, compared with 223,000 per month in 2018.
The US unemployment rate came in at 3.8% in March 2019, unchanged from the previous month’s figure and in line with market expectations. The number of unemployed persons decreased by 24,000 to 6.2 million while employment dropped by 201,000 to 156.7 million.
The US trade deficit narrowed to USD 49.4 billion in February 2019, the smallest since June 2018, from USD 51.1 billion in the previous month and compared to market expectations of USD 53.5 billion. Exports surged 1.1% while imports rose at a softer 0.2% amid ongoing trade negotiations with China.
Profits earned by China’s largest industrial firms dropped 3.3% from a year earlier to CNY 1.297 trillion in the first quarter of 2019. Profits at state-owned enterprises slumped 13.4% while those at private firms increased at a rate of 7%.
Industrial capacity utilization rate in China edged down to 76% in the first quarter 2019 from 76.5% on the previous quarter and reaching the lowest figure since the March quarter 2017.
The Chinese economy advanced 6.4% (Y-o-Y) in the March quarter 2019, the same pace as in the previous quarter but slightly above market expectations of a 6.3% expansion. Industrial output growth accelerated markedly, and consumer demand strengthened amid government’s pro-growth policies, which helped stabilize sentiments rattled by trade dispute with the US.
Japan posted a trade surplus of JPY 529 billion in March 2019 compared with a JPY 784 billion surplus in the same month a year earlier and market expectations of a JPY 372 billion surplus. Exports declined for a fourth straight month while imports increased less than expected.
The Nikkei Japan Manufacturing PMI came in at 49.5 levels in April 2019, slightly above 49.2 levels in the previous month.
Industrial production in Japan declined 0.9% (M-o-M) in March 2019, compared to a 0.7% increase in February 2019 and market expectations of a 0.1% decline.
Japan’s consumer price inflation rose to 0.5% (Y-o-Y) in March 2019 from 0.2% in the previous month and in line with market consensus. It was the highest inflation rate since November last year, as cost of both food and transport declined at a softer pace.
Global Central Bank Policies Outcome:
The Reserve Bank of India lowered its benchmark interest rate by 25bps to 6% during its April policy-meeting as widely expected. It is the second rate cut so far this year. Policymakers said that the decision is consistent with the objective of achieving the medium-term target of 4% (+/- 2 percent) while supporting growth.
Click here to read our analysis on “Bond Markets to Search for Yields- RBI April 2019 Policy Review”.
The European Central Bank held its benchmark refinancing rate at 0% during its April 2019 meeting and reiterated it expects key interest rates to remain at record low levels at least through the end of 2019, amid global growth concerns. The central bank also pledged to keep reinvesting cash from maturing bonds for an extended period.
The Bank of Japan left its key short-term interest rate unchanged at -0.1% at its April 2019 meeting and kept the target for the 10-year government bond yield at around 0%, as widely expected. The Committee said it intends to keep the current extremely low levels of short-term and long-term interest rates for an extended period of time.
Bank Indonesia left its benchmark 7-day reverse repo rate unchanged at 6% on 25th April 2019, as widely expected. Policymaker said that the decision is consistent with efforts to strengthen the external stability of the Indonesian economy.
Q4Fy19 Results Highlights:
March 2019 quarter earnings kicked off with index heavy weight stocks TCS & Infosys; Infosys reported revenue growth of 0.6% (Q-o-Q) and 19.1% (Y-o-Y) to Rs. 215 billion. Net profit increased by 10% (Y-o-Y) to Rs. 40 billion and company’s management has guided Fy20 revenue growth would be in between 7.5%-9.5% in constant currency terms. On a contrasting note to Infosys results, TCS reported better than expected earnings for the March 2019 quarter. TCS net profit increased by 18% (Y-o-Y) to Rs. 81 billion. Revenues for the quarter increased by 18.5% (Y-o-Y) to Rs. 380 billion and growth was witnessed in almost all the business verticals. Company declared a final dividend of Rs. 18 per share for Fy19.
Reliance Industries standalone net profit fell by 4.2%, which is the first decline in last 17 quarters. Gross refining margin fell to USD 8.2 per barrel from USD 8.8 in the previous quarter. The revenue from its refining business declined 21.4% over the previous quarter to Rs 878 billion. However, retail segment had reported 89% (Y-o-Y) topline growth and Reliance Jio witnessed a slight dip in ARPU for Q4Fy19.
From the metal sector, Tata Steel reported revenue growth of 26% (Y-o-Y) due to strong volume growth. On a consolidated basis, the company reported overall volume growth of 28.5% to 7.52 million tonne, largely on account of the recently acquired Bhushan Steel. In India, sales volumes climbed 12% during the quarter, driven mainly by industrial and branded products. Auto and special products categories declined by 20%. EBIDTA (excluding Bhushan Steel) was Rs 48 billion flat on a sequential basis. Tata Steel is looking to expand its capacity of its Jamshedpur facility to 13 million tons a year, from the present capacity of 10 million tons.
Passenger Vehicle major, Maruti Suzuki disappointed investors with muted Q4Fy19 results, as the whole sector is going through a slowdown. Demand for automobile & auto-ancillary products slowed down in the last couple of quarters. Maruti Suzuki reported fall in net profit of 5% (Y-o-Y) in the March quarter due to weak operating performance and muted sales volume. Maruti sold 458,479 vehicles during the quarter. Realisation per vehicle dropped to Rs 0.44 million in the March quarter against Rs 0.46 million in the previous quarter ended December 2018 and Rs 0.45 million in the year-ago March quarter. Company’s management mentioned that Maruti will stop selling diesel-powered vehicles from April 2020, because the cost to meet new emission rules will widen their price difference with petrol-run vehicles.
Two wheeler major, Hero Motocorp reported revenue de-growth of 8% (Y-o-Y) for the March quarter. Net profit fell by 24% (Y-o-Y) to Rs. 7.3 billion due to rise in operating costs and fall in volumes for the quarter. The company’s management believes that the near-term prospects of 2-wheeler market will remain challenging. However, festival season may revive growth in October 2019 -March 2020 period.
