stockaxis Market Intelligence (Commentary for May 2018; Outlook for June 2018)

June 04, 2018

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

The International Monetary Fund (IMF) expects India to grow at 7.4% in FY'19 and at 7.8% next year. As against this, China’s growth is projected at 6.6% in the current year which will taper to 6.4% next year.
According to a study by Bloomberg, correlation of India’s stock markets to global markets have reached a 10-year low providing global investment managers an asset class that can balance out returns in their portfolios.
According to the AfrAsia Bank Global Wealth Migration Review 2018, private wealth of Indians rose 25% between 2016 and 2017, taking the country to the 6th spot among the world’s top 10 wealthiest countries. Between 2017 and 2027, India's wealth is projected to grow by a whopping 200%, the fastest rate among the wealthiest nations.
With the Goods and Services Tax (GST) in place, the government is looking for a rise in India’s rank in the World Bank's Doing Business Report, 2019, which is expected to be released by the end of the year.

Domestic Trends

India’s economic affairs secretary confirmed that India's growth trajectory continues to be robust with strong macroeconomic fundamentals.
Monsoons arrived on time in the country with the Southwest monsoons hitting Kerala. Normal monsoons are expected this year.
The Nikkei Manufacturing PMI in India is expected to be 51.50 by the end of this quarter against 51.6 in April 2018. A PMI of more than 50 represents expansion of the manufacturing sector.
India’s Consumer Price Index (CPI) increased to 137.10 Index Points in April from 136.50 Index Points in March of 2018. The CPI is a measure of prices of a basket of consumer goods and services, such as transportation, food and medical care. The core inflation is picking up.
The Indian Rupee depreciated vis-à-vis the dollar over the month ending May at 67.1434 INR against 66.4367 at end-April 18.
The positives include rebounding industrial production, rising capacity utilisation, which is driving investments and a reviving credit cycle.

Market Trends

The IPO segment is set to grow with a number of companies planning to raise about Rs 35,000 crore to fund their expansion plans and working capital requirements.
The closure of Q4FY18 earnings season indicates recovery of India Inc with the consumer sector in lead.
FIIs recorded a net outflow in Indian equities of Rs. 7,581.12 crore in May against a net outflow of Rs. 5,552.21 crore in the previous month.
The Nifty closed at 10736.15 on 31st May 2018, having fallen a marginal 3.2 points over the previous month.
The Nifty 50 P/E ratio was at 27.19 at end-May 2018. The average P/E ratio for the past 12 months is 25.87.

Highlights

The Good: Monsoons kick in on time, Corporate India on growth path, banking sector stress showing signs of recovery
According to the Skymet report, there is 5 per cent probability of excess rains (seasonal rainfall more than 110 per cent of long-period average (LPA)); 20 per cent probability of above-normal rains (between 105-110 per cent of LPA); 55 per cent probability of normal rains and 20 per cent probability of below normal rains. Further, Skymet has announced no possibilities of a drought (less than 90 per cent LPA)
The Bad: Crude price rise, inflation and interest rates firming up

stockaxis’ Outlook for June 2018

Rural India that houses about 70% of India’s population, contributes about half of India’s GDP (Gross Domestic Product). The demographic profile of the population residing in rural areas is changing to an increasingly younger population, growing per capital income and transformation from rural to ‘rurban’, i.e. rural India is becoming increasingly urban over time, which implies greater demand for consumer goods (TVs, washing machines, two-wheelers, cars, etc.) Monsoons, which play a key role in the prosperity of India’s farmers, are expected to be normal this year. This has been preceded by three consecutive good monsoons.

With the election year round the corner and rural India forming the largest component of the vote bank, government’s rural spends have risen substantially. The electoral promise of farm loan waivers is part of both the major parties. Additionally, the government’s focus on building rural infrastructure, providing support to the agricultural sector, higher spending on irrigation, etc., and commitment to double farmers’ income by 2022-23 to promote farmers' welfare, reduce agrarian distress and bring parity between income of farmers and those working in non-agricultural professions, has helped give a boost to this sector.

These factors make rural India an attractive investment opportunity for corporates in diverse sectors including fertilizers, rural financial services, consumer durables, etc. Investors would do well to focus on these sectors which offer an attractive risk-reward ratio.

We, at stockaxis, are constantly on the lookout for great businesses 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!

Key sectors that will benefit from rural growth