Nifty rallied 1.4% in the month of April, 2017. FIIs turned sellers in domestic equities worth US$ 0.3 bn and DIIs became net buyer of equities worth US$ 1.4 bn. Market rallied due to expectations on resolution of NPA issue by government, falling crude prices gave a strong boost to domestic macro and strong domestic flows. The following sectors outperformed the index – Real Estate, Capital Goods and EPC as against sectors such as Pharma, Metals and Technology which underperformed in the index in 3 months ending April 2017.
Short term-Cautious; Long term-Positive
We are cautious on equity market in the near term as we expect GST implementation to impact growth in the short term, supply of paper – Govt. divestment and slew of IPOs and increased probability of US Fed rate hike. The domestic equity market is currently valued at 18.6x FY18E earnings versus long-term average of 14.7x. However, in the long term we believe that the economy would be benefitted from increasing focus on financial savings, rural growth leading to pickup in GDP growth.
Manufacturing PMI for April remained flat at 52.5. Services PMI for March was 51.5 as against 50.3 in February. Credit and deposit growth was seen at 5.53% and 11.59% respectively for the fortnight ending April 14, 2017. Consumer Price Index (CPI) was seen at 3.81% in March as compared to 3.65% in February. Indian Rupee closed against the dollar at 64.25 as on April 28, 2017.
The Company maintains cautious outlook on yields. Sticky inflation, along with concerns on global rates will weigh on the bond market. Supply from both government securities and state loans remains a concern for the market. Liquidity operations by RBI such as Market Stabilization Securities and Open Market Operations (OMOs) will further add pressure on the bond yields and we thereby expect the yields to rise from hereon. Global developments will remain a key factor to watch out for.