Multi cap, Small Cap and Mid Cap funds have outperformed BSE S&P Sensex in the month of April 2019. Strong FII flows into domestic markets helped Mid Cap & Small Cap stocks to outperform markets by wider margins. The 5-year mandate to the NDA government takes out political risks from the market. Equity markets will stabilize at higher levels and take direction from economy outlook and global issues
Table 1 gives the average returns of all funds and outperformance with respect to Sensex.
Equity markets have a lot of headwinds despite political risk going out of the market. The government has to continue with reforms and take sustained measures to revive the consumption economy. which is a continuous work in progress. Valuations have dropped and are dropping further, which gives good entry levels for fundamentally strong, long term consumption driven growth stocks.
The markets are trading at record highs despite weaker incoming economic data both on the global and domestic front. On the global front, China and Eurozone PMI has weakened while in the US, industrial output witnessed decline. Ongoing, US – China trade has intensified after US President Donald Trump announced additional tariffs on Chinese imports and increasing concerns regarding a conflict escalation in the Middle East have impacted overall global market sentiment.
Indian equity markets are also witnessing challenging environment as trade-deficit widened, GDP growth fell to 5 year low figure and IIP growth fell. The 4th quarter Fy 19 results and management guidance point to a slowdown in demand and headwinds are there across many sectors. The NBFC liquidity crisis is also weighing on financial sector, consumption sector and infrastructure sector. Auto sector is witnessing slowdown and gloomy projection for consumption ties in with that for automobile sales, together painting a bleak picture of the Indian economy. However, the government is expected to increase infra-spending during this fiscal year and RBI might also cut rates in order to spur growth. During interim budget session, government had focused on rural spending for this fiscal year. Uptick in rural demand and expansionary monetary policy should bring back economic growth, which will have a positive ripple effect on corporate earnings going ahead.
Click here to read our analysis on Q4Fy19 result trends.
On an overall basis, economies are on a much stronger footing than what they were post the 2008 financial crisis, which spurred an unprecedented central bank accommodation. Unemployment rate is down sharply from highs, economies are growing, and inflation has stayed down (which leaves some space for global central banks to cut rates). In the wake of weaker incoming economic data, central banks that were turning neutral are now rethinking their stance. Short-term outlook for markets will be consolidating but longer-term outlook for markets is more promising given that both global and domestic economy is nowhere close to the bubble levels seen pre – 2008 financial crisis.
FIIs/FPIs have bought Indian equity shares worth Rs. 211 billion and Rs.79 in April 2019 and May 2019 in May 2019.
The Indian economy advanced 5.8% (Y-o-Y) during Q4Fy19, slowing from a 6.6% expansion in the previous period and missing market expectations of 6.3%. It was the weakest growth rate since the first quarter of 2014, amid weaker consumer demand and fixed investment.
Infrastructure output in India increased 2.6% (Y-o-Y) in April 2019, easing from an upwardly revised 4.9% rise in the previous month.
India’s fiscal deficit widened to INR 1.57 trillion in April 2019 from INR 1.52 trillion in the same period of the previous fiscal year. Total revenues rose 36% (Y-o-Y) to INR 0.976 trillion and expenditures rose 14% (Y-o-Y) to INR 2.547 trillion.
The Nikkei India Manufacturing PMI dropped to 51.8 levels in April 2019 from 52.6 levels in the prior month and missing market expectations of 52.5 levels. However, post-election growth expectation sentiment remains strong.
India’s industrial production fell 0.1% from a year earlier in March 2019, the first month of contraction since June 2013.
The Nikkei India Services PMI dropped unexpectedly to 51 levels in April 2019 from 52 levels in the previous month and missing market consensus of 52.5 levels.
India’s trade deficit widened to USD 15.33 billion in April 2019 from USD 13.72 billion in the same month last year and above market expectations of USD 13.91 billion. Imports were up 4.48% to USD 41.40 billion and exports rose at a softer 0.64% to USD 26.07 billion.
Corporate profits in the United States declined by USD 72.8 billion, or 3.5%, in the first quarter of 2019 to USD 2,003.4 billion, after being unchanged in the previous period at USD 2,076 billion and against market expectations of a 2% gain.
The US economy advanced an annualized 3.1% in the first quarter of 2019, slightly below earlier figures of a 3.2% expansion and in line with market expectations, the second estimate showed.
Nonfarm payrolls in the US increased by 263,000 in April 2019, following a downwardly revised 189,000 rise in March 2019 and easily beating market expectations of 185,000. Notable job gains occurred in professional and business services, construction, health care and social assistance fields.
The US unemployment rate fell to 3.6% in April 2019 from 3.8% in the previous month, below market expectations of 3.8%.
The ISM Non-Manufacturing PMI index for the United States fell to 55.5 levels in April 2019 from 56.1 levels in March and below market expectations of 57 levels.
The IHS Markit Eurozone Manufacturing PMI was revised higher to 47.9 levels in April 2019 from a preliminary estimate of 47.8 levels. Both new orders and export sales continued to fall at a sharp pace and output shrank for a third straight month.
The Eurozone economy grew 0.4% on quarter in the three months to March 2019, accelerating from a 0.2% expansion and beating market expectations of 0.3%, a flash estimate showed. Among countries for which data is already available, Spain’s economy advanced at a faster 0.7%, while French GDP growth was unchanged at 0.3%.
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.
China’s consumer price inflation rose to 2.5% (Y-o-Y) in April 2019 from 2.3% in the previous month, matching market consensus. This was the highest rate since October last year, with food cost rising the most in three years.
Global Central Bank Policies Outcome:
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.
The Federal Reserve kept the target range for the federal funds rate at 2.25% to 2.25% during its May policy-meeting, saying that economic activity has been rising at a solid rate and that labour market remains strong. The Committee also reaffirmed its position to be patient about further policy firming.
The Bank of England’s Monetary Policy Committee voted unanimously to hold the Bank Rate at 0.75% during its May policy-meeting and reaffirmed its pledge to gradual and limited rate rises over the forecast period, despite the slowdown in global growth and ongoing Brexit uncertainties.
FMCG Sector Outlook:
Consumption slowdown dampened volume growth during Q4Fy19 for India’s largest consumer goods firms due to slow offtake of goods in rural markets. As per the Nielsen consumer report, rural consumption growth fell to 15% from 20% growth witnessed in December quarter.
India’s largest FMCG firm Hindustan Unilever (HUL), Britannia Industries along with Dabur India Marico and Godrej Consumer Products reported subdued numbers for January to March 2019. Over all managements of these firms acknowledged lower rural demand and delayed summer led to lower volume growth. HUL reported 7% (Y-o-Y) volume growth, Godrej Consumer Products reported 1% (Y-o-Y) in domestic volumes, Dabur India reported 4.3% (y-o-Y) growth in volumes and Britannia Industries reported 7% (Y-o-Y) volume growth for Q4Fy19. Forecasts of a below-normal monsoon this year at 93% as against a normal range of 96-104% is another key factor to watch out for which would impact consumer spending levels in rural markets.