Equity Market – June 2018

The market that was
While the broader NIFTY index was flat in the month of June (-0.2%), the weakness was more pronounced in Midcaps (Index down -3.8%) and small caps even further. Similar trend has been witnessed throughout this year. On a YTD basis, while Nifty is up 1.7%, Midcap index is down 14% and Small Cap Index down 21.1%. RBI grabbed headlines with the first rate hike after over 4 years and the Fed also turned incrementally hawkish. Globally, the OPEC & allies gave a final sign-off to an oil production increase by 1mbpd. On the macro front, MSP announcement from the government is still awaited. GST collections are improving, however marginally short of the required rate. Among the key sectors, Pharma made a very strong recovery in the month, while IT was marginally positive on the back of currency depreciation. The other sectors were in the red, barring a few outlier stocks in each.

On the economy front, CPI inflation continued to be on the rise, moving to 4.9% from 4.58% in May, coming broadly in-line with expectations. India’s Industrial Production data rose to 4.9% with a sharp rebound in capital goods and steady growth in infrastructure and construction sector. May trade deficit widened to $14.7bn, despite 20% growth in May exports. While imports were expectedly driven up by oil, there was a strong 13% growth in non-oil non-gold imports as well. Monsoon continues to remain in the advancing stage with IMD expecting a good monsoon in the sowing month of July with a 97% forecast for the overall June-September period compared to long period average. Capital market activity was muted in June with 5 deals totalling ~$383mn during the month FIIs were net sellers in Indian equities in June with ~$650mn of equity outflows during the month which took their YTD selling total to ~$900mn. DIIs meanwhile saw $2.1bn of net buying – YTD DIIs have now bought $9.45bn worth. Mutual Funds contributed ~$970mn to the net buying while Insurers net bought $1.1bn during the
month. FII net outflow this year (including debt and equity) reached USD 6.9bn – highest outflow since 2008, only third calendar year outflow in last 20 years.

Going Forward

On the economy front, normalcy of monsoons, GST collections, crude oil prices and INR strength will provide direction to the markets. While first two of the above factors are seemingly headed in the right direction, the latter two are worrisome at present. Fears of trade wars and retaliatory actions and global uncertainty has cast its shadows on many global indices as well as some commodities and the resolution of the same remains unclear. Interestingly, while the broader market Index has not seen much correction courtesy a few Index heavy heavyweights, the pain in midcaps and small caps is evident. We are sticking to quality in times of uncertainty as the best hedge against these volatile times and upholding quality even in times of severe price correction in many stocks.

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