Review of Equity Markets for the month of August The equity markets were subdued in August (Nifty down 1.6%), after a strong performance (Nifty up 6%) in the previous month. FII inflows into Indian equity were negative for the month at USD 1.73 Billion while domestic flows in mutual fuds remained positive at USD 2.7 Billion. Globally, EMs did reasonably well, with MSCI EM (USD) up 2% during the month. Offshore FII funds flow into EMs were strong at USD 3.6 Billion (JPM data).

Globally, EMs did reasonably well, with MSCI EM (USD) up 2% during the month. Offshore FII funds flow into EMs were strong at USD 3.6 Billion (JPM data). The geo political events had some impact on the markets during the month, with tensions over North Korea and border issues between China and India dominating headlines.

The Q1, FY 18 GDP numbers were weak with the GDP growing at 5.7% yoy (Q4, FY 17 GDP grew at 6.1%). However, global growth numbers in key economies were reasonably strong. Japan’s Q2CY17 GDP grew at a strong, 4% qoq annualized pace. The Euro area GDP grew at 2.4% qoq annualised for the second quarter while in the case of US, the revised Q2CY 17 GDP grew at 3% qoq annualised. China’s Q2’17 GDP grew at 6.9% yoy. In India’s case, while the services sector growth recovered, the manufacturing GVA growth was impacted, likely due to production cuts due to uncertainty ahead of GST rollout.

The industry GVA only grew at 1.5% yoy. Agriculture grew at 2.3% yoy (Q4, FY 17 was at 5.2%), likely driven by fall in prices of agri products as volume growth was strong.The overall results for Q1, FY 18 did not surprise positively with the exception of good performance in metals (led by strong global prices). Metals were among the better performing sectors for the month. The oil companies did well driven by positive outlook on refining margins and news flow regarding gradual removal of subsidy on LPG.

Banking stocks were impacted owing to muted results from public sector banks and risk of incremental provisions as more accounts were taken to National Company Law tribunal (NCLT) for insolvency proceedings. August 2017 PERFORMANCE AS ON AUGUST 31, 2017*
Index 1 Month 3 Months 6 Months 1 Year (%) (%) (%) (%)
Broad Indices Nifty 50 9918 -1.58 3.08 11.69 12.88 S&P
BSE Sensex 31730 -2.41 1.88 10.39 11.52 S&P
BSE 100 10315 -1.13 3.89 12.23 14.34 S&P
BSE 200 4335 -1.07 4.06 12.33 15.02 S&P
BSE 500 13762 -0.97 4.27 13.02 16.28 S&P
BSE MID CAP 15540 0.98 6.25 14.67 17.57 S&P
BSE SMALL CAP 15992 -0.63 6.04 16.81 26.43

Sectoral Indices S&P;
1 Month 3 Months 6 Months 1 Year (%) (%) (%) (%)

BSE AUTO 23689 -3.17 -1.96 10.25 7.64 S&P
BSE Bankex 27441 -3.33 3.37 16.86 21.12 S&P
BSE CD 17701 7.49 14.94 28.47 41.77 S&P
BSE CG 17331 -3.57 -1.51 13.03 13.93 S&P
BSE FMCG 10174 0.80 0.67 15.62 15.32 S&P
BSE HC 13149 -7.37 -3.06 -14.53 -18.64 S&P
BSE METAL 13284 6.91 18.11 11.70 33.65 S&P
BSE Oil & Gas 15177 6.96 6.53 12.14 37.07 S&P
BSE PSU 8645 -0.48 -0.37 2.14 15.18 S&P
BSE Teck 5709 -3.19 -0.03 -0.98 -0.77

Performance for less than one year are absolute returns. Source – MFI Explorer During the month, precious metals rallied as a result of global uncertainty. Both gold and silver were up between 4-5%. Metals prices were up sharply with zinc up more than 12% and aluminium up more than 10%. Copper was up nearly 7% during the month. Iron ore too was up 7%. The CRB index of all commodities was down a percent however, as agricultural prices were weak.
The Rupee was up 0.5% during the month. Inflation was up in the month of July with WPI rising to 1.9% (June, 0.9%) which was above expectations. CPI too was up at 2.4%. Vegetable prices were a big contributor to the higher inflation. Although it is early days yet, it appears that the impact of GST on consumer goods prices overall has been largely neutral. In other macro data, both export and import growth moderated in July vs June. Exports grew 3.9% yoy (June, 4.4%) while imports grew 15.4% yoy (June, 19%).
There is a feeling some exporters that a stronger Rupee has been impacting exports as global demand remains steady. Rains, which had weakened in early August picked up in the second half of the month and the country overall has received 96% of rains. However, within this average there is wide variation as while nearly 60% of the country area has received normal rainfall, 20% each of the country area has received either excess or deficient rains. As the markets remain strong, the primary markets have been very active, with a number of quality companies from diverse, and in some cases, relatively newer sectors coming to the markets. The issue pipeline remains strong and it could weigh on the markets.

 

*Source: Principle Mutual Fund