Fund Manager Speaks- June 2014

Market Overview – June, 2014

Global Markets

Overall Global economic condition remained stable. US economy showing some signs of recovery with its GDP edging up to 4.2%. It’s tapering of Quantitative Easing program is on schedule, which is expected to end by October. As QE failed to generate inflation, post tapering its economy should be on acid test. European economies are struggling to recover. The latest GDP figures including that of Germany and France were weak. The Japanese economy too, has slowed of late. The Chinese economy is peaked out. Thus if we take all these things together we are clearly looking at Global economy that doesn’t have the much needed momentum to suggest recovery. The easy money policy of developed economies and low interest regime is flooding emerging markets for better returns.

Indian Market

The new government under the leadership of Narendra Modi has finished 100 days and is on the right track and direction. Most top industrialists rate the prime minister’s first 100 days in office as “good”, primarily due to his intentions and not concrete policy measures. To faster various clearance processes, PM has asked industrialist to list out hindrances/hurdles that comes in between growth.  The new government is doing its best and for its outcome we will have wait for some more time. Lot needs to be done on infrastructure side including power to support industry, on supply side to contain and reduce inflation and interest rates.

Stock Markets

The market has risen by almost 50% in a year after Narendra Modi was declared as prime ministerial candidate. In last one year, the market capitalization of all listed securities has gone up to 90 lacs crore from 60 lacs crore. The BSE S & P 100 index has risen 27% since beginning of 2014. Of this 27% rise, 19% is contributed by PE expansion on the hope that the rise in earnings should follow. Lately the Industrial production has shown some signs of recovery as observed from IIP data and PMI index. FIIs are bullish on India and so overweight. The FIIs have invested around $21bn in last one year and lately the DIIs have also turned net buyer as the interest of retail investors is also picking up as mutual funds are seeing good inflow. The flow of liquidity in the market is so strong that in spite of substantial delay in monsoon, which though recovered subsequently even then leaving deficiency to 18% as on date and the Geopolitical tension have failed to dampen market sentiment. Due to deficient monsoon the sowing is down by 5% which may affect agricultural productivity resulting in higher food inflation affecting possibility of early reduction of interest rates.

Industry Performance

The June quarter results of some industry like Automobile and auto ancillary, Consumer durables which were laggards, have shown all signs of recovery.  IT and Pharma have, as usual, done well. Agri inputs, Chemical and Textile have also done well. Core sector like Metal, Capital goods, Infra and Power remained subdued. But the sentiment in the industry is optimistic with lots of hopes on Modi lead government.

Despite poor performance of particular industry many well managed companies in that industry have managed to outperform. Hence, our long term outlook for the market remains selectively optimistic as we feel plenty of money is chasing few good stocks.


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