Market Update FY2018-19

Detailed Analysis of Domestic & Global Market for FY2018-19

Introduction

In this article, we are going to analyze – Market Update FY2018-19 ie. all the activities in the global as well as domestic markets, happened in FY2018-19, that is from 1^st April 2018 up to 31^st March 2019. In the analysis of Market Update FY2018-19, following topics will be discussed :

1. Key Domestic & Global Developments
2. Equity Market Update

1. Key Domestic & Global Developments

A. Key Domestic Developments

• The volatility in the international market regarding t the crude oil, also had its impact on the petrol & diesel prices in India. The petrol prices had almost reached Rs. 90/litre and now has come down till around Rs. 80/litre.
• The finance ministry and the RBI have been successful in showcasing strong discord, with the help of Indian Bankruptcy Code (IBC), against the corporates who try to avoid debts that they have created. If any NPA’s are created in any company, then that company’s credit worthiness will go down, it wont be able to raise funds and thus its future business prospects may go down. Therefore, a strong message against cheating has been given by the government, RBI and banks together.
• In the early FY2018-19, Mr. Urjit Patel, ex-RBI Governor, had increased the Repo rate by 50 bps. Later on, the new RBI Governor, Mr. Shaktikanta Das, has reduced the rope rate by 25 bps. On 4^th April 2019, another rate cut of 25 bps has been announced by the RBI. Thus, the rate hike that had happened in the start of FY2018-19 has now been neutralized.
• In August-September 2018, we saw the concerns regarding NBFC’s started. Then the IL&FS crisis took place followed by liquidity crunch. Concerns regarding raising of new funds in housing finance companies, or NBFC’s in general, started rising. Many housing finance had to sell of a part of their business to deal with the problem of liquidity crunch they were facing. DHFL and Indiabulls Housing finance were the main casualties of this situation.
• Whenever oil prices increase, the Current Account Deficit (CAD) of the country increases, and as the Cad increased, the rupee starts to depreciate. This immediately starts to have an impact on the government security yields.
• The merger of Bank of Baroda, Vijaya Bank and Dena bank was a very big step taken by the government. The government has revived the PSU banks with new fresh funding. The accountability of the PSU banks has also increased owing to the Indian Bankruptcy Code (IBC).
• There have been a lot of changes in the RBI after the appointment of Mr. Shaktikanta Das as the RBI Governor. Earlie, RBI had sole focus on inflation, but now GDP and economic growth have also been brought in to focus. There is a change in the stance taken by the RBI and they are sending clear positive signals to corporates to borrow more money.
• Inflation being under control is very great development to our economy.
• The crude oil prices increased, leading to scope in increase in CAD. But later on crude oil prices plus concerns on CAD, both decreased. Dollar-Rupee equation which had almost reached 75 is now hovering around 69.
• In 2018, survey as well India had moved up 40 notches. This is a very big achievement for India in World Bank’s ease of doing business. To bring foreign companies in India and to promote them for Make in India, it is very important to have a good ease of doing business ranking, which are improving every year.
• From the markets perspective, the imposition of LTCG tax on listed share and equity MF units was a negative event. But the government has implemented that very tactically. Gains up to 31^st July 2018 have been grandfathered, and the gains after 31^st July 2018 will have the tax application. In the last financial year, almost Rs. 3,60,000 Cr of LTCG was booked. The government thought that there is a clear loss of revenue here, and which is why they decided to impose LTCG tax. Retail Investors will not have much problem, as the government has exempted LTCG worth Rs. 1 lakh per pan per year.
• The government is very open to make changes in the GST rates. The GST council accepts all the queries, suggestions and feedbacks and is ready to discuss them and take actions if need be.

B. Key Global Developments

• The trade war between US and China was very big global event, which had a lot of negative repulses on all the markets.
• The 10-year G-Sec yields of US grew from almost 2.5% to 3.18%. From there they have again come down till 2.48%. They have been rationalized but the volatility it had, had negative impacts as there was flight of capital.
• The deal that the European Union (EU) and Great Britain are working on is not going through smoothly. As the uncertainty continues, the business are getting hampered, trade is getting obstructed and no one wants to invest capital there at this point.
• The slowdown in China growth is because of the intensification of its trade war with US. A lot of negative sentiments have grown in China.
• US imposed sanctions on Iran because of the geo-political situations. Supply concerns and crude oil prices increased as a result. In those 8 countries who received waiver to import oil from Iran, India was also one of them.
• US G-Sec yields are the most safest investment option, and if they are giving yield up to 3% then they are the most risk free investment option. When the yields had gone up to 3.18%, FII’s had removed the capital from emerging markets and had invested them in US bonds, because of which there was also healthy outflow of FII’s from India as well.
• In the second half US started experiencing some growth concerns and inflation looked to be under control. Now, there are chances of rate cuts happening too.

2. Equity Market Update

Key Highlights of Equity Market

• Mid-cap and small cap category saw healthy correction is calendar as well as financial year.
• In the global market, plenty of pessimism had spread because of the US-China trade war. Because of that the global indices performed weakly, but NIFTY 50 still performed better in comparison.

Performance of Key Domestic Indices

• Auto sector was the worst performer in FY2018-19.
• Bankex sector performed very well with healthy returns.
• Capital Goods sector gave flat performance, where as in FY2017-18 it gave good returns of.
• FMCG sector was steady in both the years.
• Healthcare sector performed good as compared to last year. It had gone even more up, but concerns regarding big pharma companies like Sun Pharma because of whistle-blower news, and then US FDA actions on some Indian pharma companies. So, a lot of corrections happened.
• Because of the US-China trade war, the demand for metals went down leading to drop in metal prices. That is why Metal sector performed negatively.
• Power sector as usual because of the NPA’s and because of loan pressures was negative in both the years.
• Oil & Gas sector was decent in both the years.
• IT sector performed very well as the rupee had deprecated. This year will be the one to look out for. So far, TCS and Infosys have declared very good Q4 results.

• S&P BSE SENSEX gave a very good run.
• The overall midcap category saw an even more negative performance than the NIFTY MIDCAP 100.

PERFORMANCE OF KEY GLOBAL INDICES

• S&P 500 is an index of US.
• FTSE is an index of Britain.
• DAX is an index of Germany.
• CAC is an index of France.
• Nikkei is an index of Japan.
• Hang Seng is an index of Hong Kong.
• KOPSI is an index of South Korea.
• Shanghai is an index of China.
• NIFTY 50 and SENSEX have beaten the indices of developed markets by good margins.

NIFTY Absolute Returns

• In 1-Year and 3-Year, NIFTY 50 has outperformed Mid-cap and small cap.
• But in 5-Year, the outperformance of midcap and smallcap indices to NIFTY 50 is very good.
• That is exactly why, an investor should never invest in small cap of mid-cap if they want to invest for short-term.

INR Performance

• If Rupee would still have been at 74 then the depreciation would have been of around 12%.
• The FII outflows was because of the increase in US G-sec yields.
• But as of now in this year, the CAD has come under control and the FII inflow has also increased.

Changes in Key Commodity Prices

• Brent did not increase in this year. It had gone up mid-year but it again cooled down.
• Zinc and lead saw very healthy corrections in their prices.
• Steel was the only commodity whose price appreciated.
• Geopolitical concerns include the uncertainty around Brexit, US-Iran tensions US-Russia cold war issues.
• Because of all the reasons mentioned above, the volatility in commodity prices will continue.

Equity FFI’s Flows

• In FY2018-19, FII’s flows were completely flat.
• DII’s flows played a very strong and supportive role last year to help counter the FII’s outflow. This is a very positive sign for India.

Economy and Equity Markets Outlook

• The expected economy growth is around 7%-7.5%. If this happens, one can expect returns around 12% p.a. from the equity markets over the longer horizon.
• Stable macro=economic parameters are very positive sign for India.
• Inflation looks under control right now and is not harmful. The target RBI has set is less than 4%. So, RBU being comfortable with the inflation is a positive sign for India.
• The overall corporate industry of India is working at 70%-75% of their capacity. If this capacity utilisation increases then it can be very great for India.
• GST collections has reached the levels of Rs. 1 lakh Cr per month. This mean that the country is moving towards a good formal economy.
• NPA’s are now being brought under control. NPA concerns of big banks such as SBI, ICICI, Axis and Yes bank, which raised some huge questions, are also now getting resolved. Mergers of PSU banks are on-line. The first merger of Bank of Baroda, Vijaya bank and Dena bank has already happened.
• The nest 5 years should be very good for the Indian economy.

Key Risks in the Near Future

• Global events such as Brexit. If the exit of Britain from EU doesn’t happen properly, then there can be some repercussions.
• If the geopolitical concerns scale up instead of going down, then the crude oil prices are bound to scale up too.
• After the recent correction, there has been some hindrance in the flows. But, with recent rise in the March end, the confidence will again increase. There is no problem with the SIP’s, their regularity still continues.
• Supreme court has given a judgement regarding the Bankruptcy Code. If the NPA resolution tales time then it ca be problem.
• Elections have always had a effect on the market. The current one will also be worth seeing.

Notes: –

• The numbers that are used are approximate and have been rounded for presentation purposes.
• We are also not suggesting anyone to immediately go and invest in the stock markets.
• Only an analysis has been presented here. No judgments or final statements are being made here.