Fund Manager Speaks- December 2014

Market Overview – December 2014

Global scenario:

US economy showing signs of saturation as consumer demand, factory output and housing data showing weaknesses and wage growth is still sluggish. Therefore, after withdrawal of QE, interest rates which are near zero since 2008, are unlikely to rise in near future. Europe’s factory output data is showing signs of improvement but is still struggling to create meaningful growth that would generate the kind of strong hiring to push income and inflation. It’s QE of $68bn a month will begin in March. China’s manufacturing sector is struggling badly as its import is down substantially depicting weak domestic demand despite easy monetary policy. Its exports also could not revive despite ample liquidity in importing countries. Japan’s expanded quantitative easing to some extent succeeded in bringing back inflation of 2%.Budgets of oil producing nations including Russia have gone haywire. The sharp fall in crude oil prices from $110 to $60, is proof of something wrong with the global economies.

Indian Scenario:

The new stable government with able leadership, which is committed to do reforms for development and make the business doing easy, has already caught the attention of developed nations and the respective business houses. Easy money policies of developed nations coupled with extremely low interest rates and stagflation like conditions are prompting them to invest money in India where growth is expected to be around 7%. Substantial fall in crude oil prices and softening of commodity prices have helped bring inflation under control thus, paving way for reduced trade & fiscal deficit, reduction of interest rates, stable currency and saving in energy & raw material cost for the industries. Clearance of many stalled projects and quick re-allocation of cancelled coal blocks should rejuvenate lost confidence of business houses. Focus on renewable energy sources such as wind and solar, should go a long way in solving environmental issues and power deficiencies. Further, the “Make in India” concept has generated good interest in defense sector where requirements are met through imports. The government has hiked FDI limit in Defence. It has also proposed to hike FDI limits in other sectors like Insurance, Telecom, Civil aviation etc. for faster growth of the sector. We feel all these measures will open up many new avenues and opportunities resulting in reduced “brain drain” and should catch eyes of NRIs as well.

Stock market:

Most of the world markets including India, are ruling at peaks due to diversion of plenty of liquidity and prevailing low interest regime in developed nations. India is a good story. These monies are welcomed if they are going to stay for a long term. Our RBI governor is doing a good job by shoring up forex reserves to fight possible withdrawal of short term money on Fed interest hike. Domestic mutual funds are also experiencing good inflow in equity schemes. SEBI and Exchanges have become more vigilant to guard against possible price manipulation. Now the rising stock prices are to be backed by fundamental performance.

Industry Performance:

At macro level, India Inc’s December quarters earnings are disappointing.  Sample of 2941 companies shows decline in profit by 6.3% as compared with year ago period. This has been worst in five quarters. The operating profit margins of 1992 manufacturing companies in the sample were down 100 basis points on year on year basis and 140 basis points sequentially, largely due to a decline in sales and a rise in employee and power & fuel cost. These company’s sales growth has been the weakest in at least 12 quarters. For the Sensex companies, the reported net profit on year on basis declined 6.5 percent- the weakest show in six quarters – on a 2.2 percent decline in sales. This was partly due to high base effect and advanced festive season demand to September quarter. Weakness in Europe and China has affected export oriented companies.

Industry-wise performance:

 In IT sector, large players could do well. FMCG and Fast moving consumer durable witnessed dismal volume growth. In Automobile, two wheeler segments witnessed slower volume growth. Cement sector reported good volume growth. Performance of Pharma sector, particularly on export front remained subdued, Steel sector suffered a big setback, Infra sector showed improvement. Textile sectors results were subdued due to high inventory cost and Fertiliser sector without Urea did well.


We remain cautiously optimistic considering stable and determined government, clearance of stalled projects, focus on infrastructure developments, various measures to ease business doing, ample liquidity & continued low interest regime in developed economies, low crude and commodity prices, reduction in trade and fiscal deficit, low inflation, promotion to make in India strategy etc.

Investment strategy at CARE PMS:

We at Care PMS believe in company specific strategy. We try to select focused companies in sunrise industries having edge over other players with three to five years horizon. We give highest weightage to management, scalability and financial position. We strongly believe that opportunity exist in every sphere of market.


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