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stockaxis Market Intelligence (Commentary for December 2017; outlook for January 2018)

January 20, 2018

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We are pleased to present to you our monthly market commentary and outlook for the forthcoming month. The ‘StockAxis’ Market Intelligence’ is a quick update on the markets for the month gone by and our view for the next month. Use our sharp and crisp synopsis to continue building your wealth!

Global Trends

  • Debt ceiling and government funding expire in the United States: Congress needs to approve government funding and raise the debt ceiling to keep the government funded. With a proper budget now set, both measures should pass.
  • The Federal Reserve had been expected to raise its benchmark interest rate a quarter point to a target range of 1.25% to 1.5%. Also hiked growth outlook for economy.
  • Crude barrel touched 70$ a level not seen since the market slump in 2014. Prices have been driven up by oil production curbs in OPEC nations and Russia, and demand amid healthy economic growth.
  • Pollution control reform in china has led to many shifts in industry.

Domestic Trends

  • IIP: IIP for November, at 8.4% YoY, stood near its 5- year high. The sharp rebound and surprise in IIP was mainly led by the surge in manufacturing which grew by 10% - first double digit print of the new series (inception: April 2013). This rebound partly reflects the strength seen in exports, points to the sharp payback from GST-related disruptions and some recovery from the lingering impact of demonitization. The rebound is broad based, with capital goods and non-durables leading the way.
  • CPI Inflation: CPI inflation for December 2017 came in at 5.2% YoY, up 30bps from November 2017, largely led by rise in food inflation (up 50bps to 4.9%), which in turn was driven by the unseasonal spike in vegetable prices.
  • WPI Down: India's wholesale price inflation cooled to 3.58% in December led by a softer rise in food inflation. WPI had risen 3.93% in November and 2.1% in December last year.
  • Trade Deficit Widens: India's trade deficit widened to $14.88 billion in December 2017 from $13.83 billion in November 2017. Merchandise exports for December 2017 rose 12.36% from a year ago to $27.03 billion. Goods imports last month were $41.91 billion, a gain of 21.12% from a year ago.
  • Diesel, Petrol Price rise a concern: Diesel prices have soared to a record high in many cities in India while petrol is at three-year high as international crude prices hover around $70 a barrel. The rise in global prices in recent months has raised concerns about inflation and a higher import bill.

Market Trends

  • The markets reached all-time high on 26th December, 2017 touching 10,531.50 with positive marco-economic data on the back of robust performance of manufacturing and capital goods sectors creating an overall positive sentiment for the economy.
  • FIIs recorded a net outflow from the Indian stock markets to the tune of Rs. 6411.57 crores in December 2017 against a net outflow of Rs. 13514.78 crores in November -2017.
  • On the last day of trading in December 2017, the Nifty closed at 10,530.70 which was up by 304.15 points over the previous month-end of 10,226.55.
  • The Nifty 50 P/E ratio was at 26.92 at the end of December 2017.

Highlights

  • The good: Higher GDP growth rate, strong IIP data
  • The bad: The markets may face volatility at least for the time being due to upcoming annual budget of 2018, increasing fiscal deficit and rise in petrol/diesel prices.

StockAxis’ Outlook for January 2018

2018 Budget is going to be the last budget of BJP government in this term and the expectations on the street are that of it to be populist. However, giveaways can only come from either excessive fiscal slippage or higher revenues – we see limitations on both. We expect GST gains to start flowing in 2HFY19; full impact likely in FY20. Uptick in economic activity should be positive for tax revenues. With US tax reforms and Chinese pollution control lot of Indian sectors are expected to do well. Indian IT industry is going to benefit from US tax reform, Indian Steel and chemical industry would do well with pollution control making it difficult for the Chinese players to fulfill the norms. With revival in capex cycle and IT picking up, we expect employment to be strong and which lead higher GDP growth.

Although the macro factors looks positive for India, a correction could always be on the cards after such a good run. We at StockAxis do not believe in timing the market but would use every opportunity to recommend investing in great business run by honest promoters that are available at the right price with sufficient margin of safety. Our stringent stock selection guidelines and clearly stipulated entry and exit points make equity investing a "rich" experience for our investors!

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