Nifty corrected 1.25% in the month of September. FIIs remained net seller in domestic equities worth US$ 3 bn and DIIs remained net buyer of equities worth US$ 6.5 bn. Market corrected due to global fund outflow, weaker than expected GDP growth for Q1FY18 and concern on fiscal slippage leading to yields hardening. The following sectors outperformed the index – Metals & Minerals, Oil & Gas and Financials as against sectors such as Real Estate, Consumer and Pharma & Healthcare which underperformed in the index in 3 months ending September 2017.
Short term-Cautious; Long term-Positive
We are cautious on equity market in the near term due to global market concerns on FED rate hikes and balance sheet contraction, GST transition and implementation issues leading to uncertainty in tax collection and fiscal deficit concerns and supply of papers – Government divestment and slew of IPOs. Nifty valuations remain expensive at 21x FY18E as compared to LTA 14.7x. However, in the long term we expect double digit earnings growth to be supported by increased focus on affordable housing and rural income to boost GDP growth.
Manufacturing PMI for August was 51.2 as against 47.9 in July. Services PMI for August was 47.5 as against 45.9 in July. Credit and deposit growth was seen at 6.3% and 10.27% respectively for the fortnight ending August 18, 2017. Consumer Price Index (CPI) was seen at 2.36% in July as compared to 1.46% in June. Indian Rupee closed against the dollar at 63.91 as on August 31, 2017.
We have a cautious outlook on yields. Fiscal slippages at both centre and state levels remain a major cause of concern. Inflationary pressures emanating from fiscal slippages, pay commissions and food & crude prices will also weigh on the market. Global geo-political developments will remain a key factor.