Equity Outlook

Atul Kumar- Fund Manager (Equity)

The Sensex during the month of April 2013 rose by 3.55% on total return basis. The broader indices such as BSE 200 and BSE 500 performed better than BSE 30 during the month. Some of the sectors which performed well during the month were FMCG, Banking and Autos. IT and Metals were among the sectors which were a drag on the overall performance.

FII net inflow during the month of April was 1.18 Bn USD. India has received USD 11.33 Bn of net inflows so far in first four months of the calendar year, given heavy flows in January and February. Domestic institutions have sold stocks worth USD 500 Mn during the month. Domestic institutions have sold USD 6.8 Bn so far during the year counterbalancing the FII deluge.

Global economic outlook continues to remain fragile. All the major central banks are running loose monetary policies. Japan recently, under new political leadership, has decided to run aggressive monetary policy. The country plans to pump USD 75 Bn of liquidity every month to take it from deflation to an inflationary environment. Europe has plans to introduce negative rates of interest to banks when they hold cash with Central bank to encourage lending to core sectors of economy. Situation, especially in Europe, remains tense given very high level of youth unemployment. Systemic risk of the financial sector can’t be ruled out, which can impact capital markets in India.

Overall economic growth has slowed down for the country and is likely to be in 5-5.5% range for FY13. Most of the consumption sectors have also slowed down, auto sales in India declined for the first time in FY13 in a decade. On the positive side, there has been fall in crude and gold price globally. This, if sustained, is likely to reduce the trade deficit of India which has been very uncomfortable. Inflation on wholesale basis has also fallen, which prompted RBI to cut interest rates.

Many Indian companies have started declaring their results for the last quarter and full fiscal year 2013. While the topline growth has been impacted due to slowdown, the profits are turning better due to falling costs especially of raw materials. There is a lull in investment activity due to decision making from government coming to a halt. Given the union elections around the corner, this is likely to continue for some time.

We remain optimistic about Indian equities in the long run. Despite the double digit rally in Sensex for Calendar year 2012, we see current equity valuations as reasonable. We remain hopeful of India continuing to record GDP growth of 6.5-7% over next many years, irrespective of global uncertainties.