stockaxis Market Intelligence (Commentary for August 2018; Outlook for September 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

• According to Moody’s Investor Services, the Indian economy is expected to grow by around 7.5% in 2018 and 2019, and will be largely resilient to external pressures including rising oil prices.
• India’s economy grew at a 2-year high of 8.2% in the April-June quarter, which, according to industry bodies, confirmed that revival is on track.
• The Engineering Exports Promotion Council (EEPC) stated that the US continues to be a top buyer of Indian auto parts. It imported USD 290 million worth of auto components from India in April-June, a growth of 23.8% on yearly basis.
• Consumer companies have been able to pass on higher costs to Indian consumers due to higher demand from the world’s fastest growing economy.
• India and Singapore signed a second protocol to amend the Comprehensive Economic Cooperation Agreement (CECA), which will help boost bilateral trade.

Domestic Trends

• The Nikkei India Services PMI index (which reflects the rate of services business activity) rose to 54.2 in July 2018, the fastest growth since October 2016.
• A report by International Data Corporation (IDC) states that India's personal computer (PC) demand grew a healthy 28.1% (2.25 million units) in April-June 2018 quarter. Notebooks contributed 61% of the overall India PC market.
• India’s exports rose 14.32% year-on-year to USD 25.77 billion in July 2018.
• According to a report by human resources firm TeamLease Services, Indian employees received a 10-15% increase in their salary in the appraisal season of 2018.
• According to Naukri Hiring Outlook Survey, companies expect hiring and job creation to be on an uptrend in the July-December 2018 period.
• Net investment by Domestic Institutional Investors (DIIs) in August 2018 was Rs. 2,822.72 crore against net investment of Rs. 3,845.87 crore in the previous month.
• India’s inflationeased to 4.17% in July 2018 against 4.92% in June 2018.
• The Indian Rupee depreciatedvis-à-vis the dollar ending August at INR 70.87against INR 68.45 in the previous month.

Market Trends

• According to a report by global brokerage firm, Morgan Stanley, India’s equity market outperformance could cause foreign capital inflows to return.
• Bombay Stock Exchange (BSE) delisted 17 companies as trading in their shares have remained suspended for over six months. Some of these companies are Associated Marmo & Granites, Baroda Electric Meters, Bihar Air Products, Cana Glass, Graphic Charts, IAG Company, Kiev Finance, Mahavir Impex, Neelkanth Motels & Hotels, Prithvi Information Solutions, Realtime Finlease and Sibar Media & Entertainment.
• FIIs recorded a net outflow in Indian equities of Rs. -2,228.53 crore in August against a net outflow of Rs.2,768.75 crore in the previous month.
• The Nifty closed at 11,680.50 as on 31st August 2018, 11356.50 as on 31st July 2018, having risen 324 points over the previous month.
• The Nifty 50 P/E ratio was at 28.40 at end-August 2018. The average P/E ratio for the past 12 months is 26.49.

Highlights

• The Good: Robust economic growth, rural recovery, NPA resolution
• The Bad: Crude prices, state elections, inflation, trade wars

stockaxis’ Outlook for September 2018

Consumer Sector – on the growth path

Indian consumer sector has several drivers including – forthcoming general elections leading to higher spending on social schemes and rural infra projects, strengthening rural recovery resulting in higher disposable income and spending, GST implementation leading to market share gain by organized players, continuing urban consumption and ending of distribution disruption which was caused by demonetization and GST.

India’s structural consumption story is chugging along smoothly. Higher urbanization is resulting in higher middle-class population, appealing demographics where several millions are added to high disposable income category, government programs alleviating the poor above the poverty line etc. are primary reasons for aiding this story. India has been fortunate to have good monsoons which would augur well for farm income. This will be further boosted by increase in minimum support price of ~ 27% on farm produce and increase in rural development spending and National Rural Employment Guarantee Act (NREGA).

The urban consumption story is being supported by Seventh Pay Commission pay hikes and implementation of the One Rank One Pension (OROP) scheme which stipulates same pension, for same rank, for same length of service, irrespective of the date of retirement for the Indian armed forces and veterans.

One of the key beneficiaries from the consumer sector will be fast moving consumer goods (FMCG), which forms the fourth largest component of the Indian economy. Of this, the household and personal care segment comprises 50%, healthcare accounting for 31% and the balance 19% being the food and beverage sector.

Rupee Depreciation – sectors that will benefit

Due to several strategic and tactical reasons, the rupee has been steadily depreciating against the US$. Increasing interest rates in the US, increasing oil prices resulting in widening current account deficit, trade war between the US and China leading to competitive devaluation etc. have been the prime contributors to this depreciation.

Export oriented industries will be the immediate beneficiaries of this move. Leading ones are Information Technology, Pharmaceuticals, Textiles, Agriproduce and products, Chemicals, etc.

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!

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