Nifty was up 3.51% for the month of October 2019 as signs of discretionary consumption pickup during the festive season were visible. Also, corporate results have been better than expectations for some beaten down stocks. Further, signs of China-US trade resolution has led to global rally in equity markets. Auto and oil & gas sectors outperformed the index while technology and telecom underperformed in the month of October 2019.
We remain positive on markets as government fiscal boost leads to earning upgrade. We saw some improvement in festive season sales for some categories. With normal monsoon, rural demand is also expected to grow going ahead. Further, low tax rate for new capex/corporate entity should boost investments into India and kick start private capex in addition to job creation. Also, progress in the US-China trade agreement is likely to improve the global sentiments. However, lending aversion continues as news flows around corporate/NBFC defaults continue.
CPI inflation for September 2019 was seen significantly higher at 3.99% (against 3.21% in August 2019), led by a sharp rise in food inflation. As on October 11, 2019, credit growth was seen at 8.8%, lower than the deposit growth of 9.8%. Trade deficit narrowed further to $10.86 billion in September, due to a decline in imports. Manufacturing PMI for October was seen lower at 50.6. Indian Rupee remained range bound against the dollar and closed the month at 71.08. Liquidity surplus in the banking system increased significantly.
We expect RBI to cut policy rates by 25-40 bps by the end of FY 2020. We also expect RBI to continue maintaining surplus liquidity in the banking system to assist in better transmission of rate cuts – to achieve this we expect RBI to undertake Open Market Operations (OMO) in Q4 FY2020. However, borrowing by PSU / private sector is likely to keep the pressure on yields.