Nifty is flat for the month of June. FIIs sold equities worth US$0.4bn while DIIs bought equities worth US$2.1bn. Markets flat despite global market sell off due to rally in key heavyweights and strong domestic flows. The following sectors outperformed the index – Technology, Consumer and Pharma as against sectors such as Telecom, Capital Goods and Real Estate which underperformed in the index in 3 months ending June 2018.
Short term-Cautious; Long term-Positive
We are cautious on equity markets in the near term due to fears of fiscal concerns leading to rupee weakness, global withdrawal of liquidity with rising bond yields and political uncertainty ahead of 2019 general elections. Nifty valuations remain expensive at 19.2x FY19E as compared to LTA 14.7x. However, in the long term we expect corporate earnings growth in double digit.
Markets remained range bound over the past month. Manufacturing PMI for June was seen at 53.1 while Services PMI was seen at 52.6 in June. Credit and deposit growth was seen at 12.68% and 8.35% respectively for the fortnight ending June 8, 2018. CPI inflation for May 2018 was seen at 4.87%. Indian Rupee closed against the dollar at 68.47 as on June 29, 2018.
We have a cautious outlook on bond yields. We expect another 25-50 basis points hike by RBI in FY 2019. There are significant upside risks to inflation stemming from the recently announced MSPs, high crude oil prices and depreciating rupee. High supply by both central and state government would retain the pressure on bond yields. However, absolute yields on the bonds look very attractive. Possible Open Market Operations (OMOs) by RBI in FY 2019 will lend some support to the market. Based on the above factors, we remain cautious on the market and would add duration on uptick in yields.