After three consecutive months’ (June, July
& August) strong performance, the Indian equity markets have shown the sign
of nervousness in the month of September 2020. Huge volatility have been seen
during the month with downside bias. The NSE - Nifty 50 lost its 400 points or 3.43%
since August 28, 2020 to 11247.05, while BSE – Sensex down by 1400 points or 3.54%
to 38067.93 over the same period. It was mainly because of the fear that a
fresh lockdown may be imposed as the COVID-19 cases saw a spike, rising India-China
border issue, coupled with bleak economic data especially in the USA which led
to selloff in risky asset classes across the globe. On the economy front, owing
to the complete lockdown in the country, India's Q1FY21 GDP contracted by a
massive 23.9% YoY. It was the first GDP contraction in more than 40 years. Several
rating agencies/brokerage houses have estimated a GDP contraction of more than
10% for FY21. Previously GDP contraction was estimated in between 5-6% for FY21.
Hence, this negative outlook on the growth front have also weighed on FPIs
sentiment. Consequently, FPIs were remained the net seller in Indian equity
market. FPIs have taken out ~Rs.5689.87 crores from the Indian Equity during
the month. This was FPIs first net selling in Indian markets, after three consecutive
months of net buying (from June to August 2020).
India is one of the most affected countries
from the coronavirus pandemic. So far, the confirmed Covid-19 cases in India
crossed to 6550000, while more than 100000 people have died. On the positive
front more than 5500000 patients have been recovered in India from the deadly
virus infection. Globally, the number of confirmed cases now crossed to
35000000, wherein, 1030000 plus deaths have been recorded due to
virus. However, in order to slow down the spread of the virus, India’s
government implemented a countrywide lockdown in late-March, and was
subsequently extended several times. Stringent restrictions halted most
economic activities and caused millions of people, many of them daily wage
earners, to lose their jobs and revenue streams. Hence the lockdown took a toll
on the economy. Globally, the Covid-19 pandemic has brought countries to a
complete stand-still and pushed the global economy into one of the worst
recessions of recent times.
Now the current major challenge in front of
the governments (globally) is to revive their economic growth. Back home, Indian
businesses have suffered the consequences of poor consumer demand and supply
fluctuations etc. So the need of the hour for Indian government is to formulate
such an effective policies which will help in demand revival in the economy. However, the government of India and RBI
already stated that they have kept their eyes closely on the current economic
status and will take necessary actions as and when required. It is also
clearly visible that the Government
is taking all necessary steps to ensure that India is prepared well to face the
challenge and threat posed by virus.
Market participants have been
guessing for a second round of stimulus from Government however given the fact
that India fiscal deficit have already hit 109% of budgeted levels and
borrowing limit also kept unchanged at Rs.12 trillion. So here we need to watch
carefully that how government would like to handle country’s revenue-expenditure
account with keeping in mind of country sovereign rating issue. The divestment
of LIC would be a big fish for the Government as far as divestment is
concerned, although the timing is all about.
From early
October 2020, Indian corporates will start reporting their Q2FY21 & H1FY21
results. This time companies’ half yearly financial report card will play a
vital role for the market, as it will clear the picture of economy unlock
impact on the companies financials to a large extent. RBI is scheduled to
announce its monetary policy review in the month of October 2020 amid increased
demand for the waiver of interest on interest on outstanding loans. Hence the
policy decision along with governor’s commentary will be closely watched. On
the global front, with the U.S Presidential elections now entering into last
leg, Mr Donald Trump has tested Covid positive, thus throwing further
uncertainty over the future course of events. So going ahead, corporate
earnings, RBI policy stance, government’s financial stimulus announcements (if
there), sector the government decides to incentivise (if any), Indo-China
border issue and U.S Presidential election status/outcome will dictate the
market trend. I strongly believe that market corrections are the good friends
for long term investors, as investors can accumulate good quality companies at
lower valuations. The recent correction are actually giving the opportunity for
investment. I believe those who is looking to park money for long term time
perspective then equity is the best parking area for them under the current juncture.
India GDP growth outlook by major
Rating Agencies:
The Indian
arm of Fitch Ratings, India Ratings and Research (Ind-Ra) has
projected India’s FY21 GDP growth forecast at -11.8% as
against its earlier prediction of -5.3%. Fitch Ratings, meanwhile, cut its
growth forecast for India for FY21 to a contraction of 10.5%, more than double
the 5% contraction projected in June 2020.
Moody’s
Investors Service lowered India’s projected GDP growth rate to -11.5% for FY21
financial year from -4% estimated earlier. The global rating firm said the
collapse in India’s GDP in the first quarter was one of the sharpest among all
major G-20 economies.
S&P
Global Ratings has cut India's FY21 GDP forecast to -9% from -5% as it believes
that rising COVID-19 cases in the country will keep private spending and
investment lower for longer than anticipated.
Domestic
rating agency ICRA has revised its forecast for the contraction in India's FY21
GDP to 11% from its earlier assessment of 9.5%. The agency, which was earlier
estimating a contraction of 9.5%, said the revision has been done as the rate
of new COVID-19 infections remains elevated.
Major Key Events during September 2020
Index
of Industrial Production (IIP):
Industrial
production in India shrank 10.4% YoY in July 2020, following a downwardly
revised 15.8% fall in June 2020. It marks the fifth straight month of falling
industrial output due to the coronavirus pandemic and a prolonged lockdown.
Wholesale Price Index (WPI) Inflation:
India’s WPI Inflation for August
2020 rose to 0.16% after being in the negative zone for four straight months as
food items and manufactured products turned costlier. WPI was -0.58% in July
2020 and 1.17% in August 2019.
Consumer Price Index (CPI) Inflation:
India's retail inflation for the
month of August stood at 6.69%, slightly lower than 6.73% recorded in the
previous month. The CPI inflation rate for July has been revised to 6.73%
from 6.93% earlier.
SEBI
Released New Multi-Cap Fund Guideline:
Multi-cap
funds, which are one of the most popular categories of equity mutual funds, are
going to change fundamentally. The SEBI changed rules mandating that multi-cap
fund should invest at least 25% of total assets in each of large, mid and small
caps stocks. While earlier such schemes had to invest 65% assets in equities,
there were no category-wise allocation thresholds. Overall, the minimum
investment in equities by these funds is required to be not less than 75% at
any given point of time.
Fed Leaves Interest Rates
Unchanged:
In a widely anticipated move, the Federal Open Market Committee (FOMC)
has voted to keep interest rates at zero to 0.25% to support the wounded U.S.
economy as it recovers from the deep impact of the Covid-19 lockdowns. The
committee also signalled it would hold them there through at least 2023, vowing
to delay tightening until the U.S. gets back to maximum employment and 2%
inflation.
Bihar Elections 2020 Schedule:
The Election Commission of India has announced schedule for General
Election to the Legislative Assembly of Bihar 2020, which will be conducted in
three phases in October and November. The results will be announced
on November10.
India’s
Current Account Balance:
India posted a healthy current account surplus
in Q1FY21 on the back of lower trade deficit. According to Reserve Bank of
India's data, India’s current account balance (CAB) recorded a surplus of USD
19.8 billion (3.9% of GDP) in the April-June quarter (Q1FY21), compared to
a USD 15.0 billion (2.1% of GDP) deficit in the same period last
year. The surplus in the current account in Q1 of 2020-21 was on account
of a sharp contraction in the trade deficit to $10 billion due to steeper
decline in merchandise imports relative to exports on a YoY basis.
Thanks
& Regards
Sanjeev
Jain
Vice
President – Equity Research
