Fund Manager Speaks- March 2017

Market Overview – March 2017 Quarter

Global Economy:

Riding the momentum following the presidential election, stocks surged for much of the first quarter of 2017. Buoyed by the anticipation of tax cuts and policies favorable to domestic businesses, the benchmark indexes listed here reached historic highs throughout the quarter. During the quarter, Dow Jones reached the magic 21000 mark for the first time. However, the US economy turned in the weakest performance in 3 years in the January to March quarter growing by just 0.7% vs 2.1% in October to December quarter as consumers sharply slowed their spending. However, economists expect the growth to rebound to 2% or more in the coming quarters.

Fed Rate: Following its meeting in March, the Federal Open Market Committee raised the target range for the federal funds by 25 basis points to 0.75%-1.00%. This is the first interest rate change for 2017, although the FOMC projects that it will increase rates two more times this year. The Committee expects that economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2% over the medium term.

Eurozone economy defied expectations and grew at 1.8% during the quarter i.e. a robust growth of 0.5% over the corresponding quarter of last year on the back of solid consumption and buoyant exports. On top of the positive incoming data, Eurozone is also clearing political hurdles as centrist Emmanuel Macron won the elections in France ensuring the 2nd largest economy remains in pro-European hands.

China regained its position as the fastest growing economy in the world, growing at 6.9% which is slightly faster than expected, supported by government infrastructure spending spree and a frenzied housing market. The government is aiming for a growth of 6.5% in 2017.

Japan’s economy grew at 2.2% in the first quarter which is its fastest in over a year thanks to robust exports and a much needed helpful boost from private consumption. This gives policy makers some relief who hope that economy is now gathering momentum which will drive up inflation which remains stubbornly below their 2% target.

Indian Economy:

India’s economic growth slowed to 6.1% in the fourth quarter ending March 2017, compared with 7.1% in the previous quarter, clearly showing the scars of demonetisation on the economy which resulted in China becoming the fastest economy in the world in the March quarter. Almost all sectors, with the exception of agriculture, showed deceleration in the aftermath of demonetisation. While manufacturing sector output in the fourth quarter slowed to 5.3% versus 12.7% in the same period last year, construction slipped into negative territory, contracting 3.7%.

Consumer inflation fell to its lowest in 5 years because of softer food prices raising hopes for a rate cut. Further, the MET department expects higher rainfall than its earlier forecast of 96% of normal which has been revised to 98% of normal due to lower probability of El Nino during the monsoon season.

GST: The economy is also expected to benefit from the introduction of a nationwide goods and sales tax (GST), eliminating multiple state sales taxes, making it far easier to do business in India. The GST is expected to come into effect from July 1.

Corporate Performance:

The quarter gone by has shown that top-line growth has improved for the 3rd quarter in a row and is in fact 2nd highest growth in the past 10 quarters whereas operating performance has been weak. Commodity-linked sectors, Steel and FMCG sectors were the saving grace whereas IT, Telecom, Power, Pharma and Airlines sectors were the laggards.

Stock Markets:

The Indian markets performed very well in the January to March 2017 quarter led by positive global cues, good flow of funds from Mutual Funds, HNIs and general public. The BJP victory in UP in March improved the perception about the Indian economy amongst foreign investors which resulted in FIIs becoming net buyer as they pumped in more than `25000 Cr during March which also led to rupee appreciating vis-à-vis dollar. Markets are currently trading at all-time highs with Nifty trading at a one-year forward PE of 17.21 times which is higher than 5 years average of 14.77 times.

Strategy at Care PMS:

The current market scenario has led us to re-enforce our philosophy of bottoms up approach and re-balancing our portfolio from non-performing companies to performing companies. However, we continue to remain positive on India’s growth story.

Happy Investing !!


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