Fund Manager Speaks- March 2018

Market Overview – March 2018 Quarter

Global Economy:

The global economic upswing continues to strengthen but US policy uncertainty and a potential trade war could quickly darken the bright skies. Global GDP growth is forecast to accelerate to 3.9% in 2018, the strongest annual expansion since 2011. Faster growth in the US, Japan and China, would largely drive global growth during 2018-19.

USA: The US economy is outpacing other advanced markets, with growth set to expand 2.9% this year before easing to 2.7% in 2019. The growth is driven by various factors such as stronger than expected economic activity, robust external demand, fiscal policy changes and the slashing of corporate income tax from 2018. Summit between North Korea and USA to be held next month will help in easing tensions but inflationary pressures due to tax stimulus and global trade war are the major concerns.

Fed Rate: The Federal Reserve held interest rates steady at its meeting in May 2018 inspite of inflation rising to 2% (which is its medium-term target). The Fed was optimistic about the strength of the economy but have noted some risks on horizons for growth – most notably a potential drag from a trade dispute with other nations like China.

China: GDP growth in China, which was the fastest growing economy last year, is expected to slow down to 6.6% during 2018 from 6.9% in 2017. However, China’s economy grew by 6.8% in the first quarter of 2018, faster than expected, buoyed by strong consumer demand due to strong wage growth in urban areas and surprisingly robust property investment despite continued measures to tame rising home prices.

Indian Economy:

The “hand of government” was the main driver for GDP growth for the 4th quarter of 2017-18 as the growth improved to 7.7% (fastest in 7 quarters) as exports and private consumption disappointed. India retained the tag of the fastest growing major economy in the March quarter on robust performance by manufacturing and service sectors as well as good farm output. Prediction of normal monsoon for 2018 is positive but rising oil prices and the health of banking sector are the major concerns.

RBI: The RBI at its last meeting had flagged several concerns which could lead to increase in inflation like increase in MSP for farmers, farm loan waivers and high & volatile crude oil prices. However, prediction of normal monsoon and 7-quarter high growth rate in Q4’18 are positives.

Corporate Performance:

As the earnings season for cooperate India nears its end, the results reveal subdued performance during the fourth quarter of FY18. According to a recent report released by CARE Ratings, net sales growth slowed down to 9.1% during Q4’18 from 11.4% growth during same quarter last year whereas net profits declined by 53.4% during the quarter as compared to 30.7% growth last year. If we exclude the banking and financial services sector, net sales grew by 10% during Q4’18 whereas profitability witnessed a sharp improvement and increased by 29.3%.

Sectors such as automobiles, capital goods, mining and minerals & cement did pretty well whereas telecom, banking and pharmaceuticals reported stress during FY18.

Stock Markets:

Indian equity markets nudged lower as crude oil prices soared and rupee depreciated against the dollar along with the unsatisfactory outcome of Karnataka elections. Further the CPI as well as WPI inflations figures surged to a 4-month high in April 2018, which has given rise to concerns of rate hike by RBI in its upcoming meeting.

Market corrections can be a blessing in disguise. If appropriate to one’s situation, use it to your advantage.

“I’ve found that when the market’s going down and you buy funds wisely,

at some point in the future, you will be happy”

– Peter Lynch

Happy Investing!!


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