Fund Manager Speaks- March 2016

Market Overview – March 2016


In its latest World Economic Outlook, IMF further lowered forecast for global economic growth to 3.2% this year from 3.4% earlier. Meanwhile, the United States, one of the relative bright spots in the global economy, also saw its 2016 growth forecast cut to 2.4% from 2.6%. Therefore, Fed is likely to remain slow in raising interest rates. Monetary easing boosted a cyclical recovery in the Eurozone, but not to its potential.  The major event of referendum of the UK leaving the European Union is nearing. The economic impact of its happening is uncertain. As per IMF statement, British exit from the EU could do severe regional and global damage by disrupting established trading relationships. The stimulus measures and monetary easing did not give desired results in Japan. Oil producing economies are in severe pressure. Among the five BRICS countries Brazil and Russia are in recession, South Africa is barely growing, China is experiencing sharp structural slowdown and India is doing well only because- in the words of RBI governor, Raghuram Rajan-“ In the kingdom of the blind, The oone-eyedman is king.”

The IMF urged policymakers to boost growth with actions such as deregulating certain industries and raising labour market participation. It recommended nations with fiscal breathing room to boost investments in infrastructure and cut labour taxes, and it encouraged central banks to keep monetary policy accommodative.


India stands out amongst developed and developing countries as far as growth is concerned. India grew at 7.6% in 2016 and 7.9% in March quarter, signalling sequential improvement in growth drivers. Inflation is under control. India has emerged as the most favoured destination for foreign direct investment (FDI) in 2015, outpacing China. The Modi government has opened sectors such as railways and defence, narrowed the current account deficit and kept fiscal deficit with in budget limit. It also addressed concerned of foreign investors about levy of retrospective taxation and stable direct tax policies

India also jumped 16 notches to 55 among 140 countries in the World Economic Forum’s Global Competitiveness Index that ranks countries on the basis of parameters such as institutions, macro-economic environment, education, market size and infrastructure among others. The government has initiated number of steps to ease doing business and should move up rapidly in the Ease of doing business ranking.  Passing of Insolvency and Bankruptcy law will ensure time-bound settlement of insolvency, enable faster turnaround of businesses and create a database of serial defaulters. Further Goods and Service Tax Bill is expected to be passed in monsoon session.

Two consecutive years of sub-normal monsoon has affected, particularly the rural economy. The April IIP data does show effects of this with erosion of rural purchasing power resulting in contraction of FMCG sector growth. Further, severe NPA problems, particularly in PSBs also affected their lending appetite resulting in substantial fall in expenditure in private capital goods sector.

Q4 2016 – Industry performance

After several quarters of moderate performance, the aggregate profits of Sensex companies (excluding banks) have grown at a healthy rate of 17.5%, albeit on a lower base of Q4’2015. Though realisations remained under pressure, it was the volume growth that led the revenue growth of 6%. But the improvement in margins was largely driven by low input costs.

Sector wise performance

Capital goods, infra and engineering:

There was moderate growth in top line but due to low input cost benefit, there was decent growth in margins.

Consumer Durables:

This sector performed well with reasonable growth from urban areas and input cost benefits.


This sector witnessed mid single digit growth mainly due to sluggish rural demand.


Performance of top IT majors remained mixed due to pricing pressures and rising staff cost.

Oil and Gas:

Upstream oil companies gave subdued performance on low oil prices.

Downstream oil companies performed well on refining margin expansion but had some inventory loss.


There was no overall improvement in plant load factor of Thermal power generating companies due to weak demand. The power deficit continued to fall.

Stock market

The Sensex trades at 16.4 times 12-months projected profits, the costliest since January’2011 and higher than its five year average of 14.  With the falling interest rates and easy money policies world over, we feel, there is a further scope for PE expansion. FIIs have bought $1.5bn worth of shares in this financial year so far. FII poured in $4.1bn in the month of March. The benchmark has risen 16% from low reached in February’16. India is actually in a relatively good position with potential to grow at around 8% when other economies are struggling to come out of recession or stagflation. We believe that India is not that much dependent on the rest of the world. India is mostly a domestic story. With governments higher rural spend and prediction of above normal monsoon, India has potential to broaden the consumption story from urban to rural. With so much growth potential, we can, to some extent presume that our economy is least exposed to ups and downs in the Global economy.


India still being predominantly agrarian economy, its fortunes are tied up with the monsoon. After two consecutive deficient monsoons, if this year’s Meteorological department s prediction of above normal monsoon fructifies then its positive effects will be visible in second half onwards.  Even after much sought rebound in commodity prices by exporting countries, still it remains in India’s favour and reaches and will not push inflation much.  But looking at the operating performances and financials of many corporates, we feel, there remain lots of stressed assets pains yet to be booked in banks accounts which may continue for few years and will ask for substantial budgetary provision. So over all, the outlook remains more concerned with situations in domestic economy rather than global situations.

It will be interesting to note here comments of Mark Mobius, executive chairman, Templeton Emerging Markets Group:

“Modi’s policy stance and philosophy will start feeding into the economy, accelerating the pace and that’s going to have a terrific impact. If you factor in the reforms, India is on the cusp of an interesting opportunity.’

Strategy at Care PMS

Recently we have noticed that many domestic and foreign fund managers are finding small and Midcap stocks more interesting than large caps.  And looking at the recent history of last five years, these stocks have given better returns than large cap stocks.  We have the skill and the required expertise to trace Gem from such stocks at early stage and our strategy of being stock specific continues.

Happy Investing!


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