Fund Manager Speaks- March 2015

Market Overview: March’2015 quarter

Global Scenario:

The U.S. economy grew slower than expected in the first three months of 2015, due to harsh winter weather, a strong dollar and a slowdown in exports. Post March quarter, improvement is seen in the economy but the interest rate hike is unlikely to happen before September. The economic recovery in the Europe has remained weak and lacks momentum. The euro has depreciated noticeably. The ECBs sovereign bond purchases program is upheld by the court. But ECB is committed to stimulate the economy through QE measures. China has cut its growth target for 2016 to 7%, which would be the slowest expansion in more than two decades. Its deceleration is one of the main reasons for the sell-off of global commodities from iron ore to coal over the past two years. After launch of massive economic stimulus, Japan’s economy seems to be on the path of recovery with private consumption and investment both indicating signs of improvement. Falling oil and commodity prices are redistributing income from commodity-exporting countries to commodity-importing ones on a massive scale helping to recover ailing economies to some extent. Overall, the most of the major economies of the world are facing an era of low growth, low investment & low inflation in spite of their pumping of plenty of money.

India Scenario:

After Shri Narendra Modi taking charge as PM, it is beyond doubt that India is a good long term story for investment. On completion of one year of the NDA government it is apparent that, government is working to bring structural changes, is clear about its goal and is determined to achieve it. Various initiatives taken by the government like push for “Make in India”, FDI in Insurance and defense, successful auctions of coal mines and telecom spectrum, direct transfer of food, oil & gas subsidies, thrust on revamping railways, focus on building roads and infrastructure, introduction of Land  reforms and GST bill, passing of black money bill etc. should go a long way in  promoting investment and acceleration of economic growth and restoration of confidence of industrialist and attracting investors from world over. Further, Reduction in trade and fiscal deficit, reduction in inflation below RBI target level, rise in foreign exchange reserve etc. resulted in revision of India’s sovereign rating from stable to positive by Moody’s. Stable crude oil prices at reasonable level, low commodity prices and declining trend in interest rates should help lower cost of production for industry, promote new investment and should generate demand.

Stock market:

After March quarter results, Index corrected around 12% from its peak, resulting in healthy and much needed correction. Euphoria that had built up post-election of Modi Government based on unrealistic expectations seems to have fizzled out as it was too fast, too early, without proper understanding, without patience and without supportive fundamentals. Last two months IIP data indicates some signs of improvement in manufacturing, which should generate new hopes having potential of coming true. Still India is the most over- weight economy among all emerging nations.  Further global fund managers have accumulated enough cash levels (4.9%), which is at 6 months high, which indicates that there is enough juice to fuel a rally in equities because when the average cash balance rises above 4.5%, a contrarian buy signal is generated for equities. The mutual funds are also witnessing good flow in equity schemes. But now, from present price levels, the rally will be from knowledgeable long term investors in stocks having fundamentals and good future prospects.

Industry Performance:

The overall industry performance for the quarter, both manufacturing and service, turned out is, abysmally poor. The slowing global economies including India, resulting in slowing down top line growth which withdrew pricing power from industry in spite of rising staff cost and other overheads, translating into lower operating margins and profits. Many companies succeeded in reducing loans and interest burden through better working capital management and marginal reduction in interest rates helped improve their year-end financial statement.

Sector performance:

Auto Ancillaries: Performance was mixed. Companies like Amara raja, Bharat Forge, Motherson Sumi, Munjal Showa, Sona Koyo managed to improve performance.

Automobile: Performance also remained mix with Ashok Leyland, Eicher, Maruti, TVS Motors did better.

Banking:  Performance of PSB remained weak. SBI managed to improve upon its NPAs. Private Bankers did well.

Chemical & Fertiliser: Performance of most of the companies remained poor. United Phosphorous did better.

Consumer Durable: Performance was mixed, affected due to sluggish rural economy. Kitchen appliances segment did not do well. In segment like AC, Air cooler, Refrigerator, Washing machine etc. Whirlpool, Hitachi and Symphony did very well.

Oil and Gas:  Exploration companies’ performance remained poor due to fall in crude prices. Oil marketing companies did better with deregulation.

Engineering: This sector performance remained poor. Voltas, Titagarh Wagons, Siemens, Thermax managed to perform better.

Finance including Housing finance: Most of the companies in this sector did well.

FMCG: Most of the companies in this sector registered moderate growth with few exceptions like Brittania, Tata Coffee

Logistics: All the companies like Allcargo, Blue Dart, Gati etc. did well.

Mining & Steel: Due to fall in commodity prices globally, the performance got affected.

Pharma: Overall performance remained mixed among major companies.

Power & Power Equipment: Overall performance remained poor.

Real Estate: Overall performance remained poor. Oberoi, Mahindra Lifespace could do better.

Software: Performance was much below expectation in case of all major IT companies with rise in staff cost without commensurate rise in price.

Telecom: All did very well.

Textile: Overall performance was not bad. Companies into garment manufacturing chain did well.

Industry/ Market outlook:

Series of measures already taken and many more underway to improve Indian economy and making business doing easy coupled with easy money policy globally with low interest regime and low crude  & commodity prices should work in favour of the industry both, in short and long term. But, it is needless to say that the benefit will accrue to those who are efficient at operational level and prudent enough in financial management and dynamic in adopting changing time and technology as the business environment is getting more and more competitive, demanding and challenging. The Index PE around 16 is below five years average, which can be termed as reasonable. The recent sell off by FIIs on poor quarterly performance and possibility of Federal reserve hiking interest rate from 0.25 to 1% in span of one year is not of much of importance because we expect the performance to improve over a period of time and there is dearth of good fundamental stocks and FIIs do not invest here to earn 1 or 2 percent. The most important is, after many years, India has got good leadership with right people at crucial positions which has ability to sail through the country from every storm, how so danger it may be.

Strategy at Care PMS:

We follow company specific policy based on industry prospects, scalability, management capabilities, product focus, financial health, valuation etc. We try to explore unidentified companies for better returns.

Happy Investing !!


Leave a Reply

Your email address will not be published. Required fields are marked *