News from around the globe
Economic indicators in key developed economies surprised positively.
News out of US indicated improvements in the housing sector and employment conditions.
In Europe, the central bank reassured that lose monetary policy will continue as long as necessary. Growth is still proving to be elusive for the Euro zone economy largely on account of the Budget austerity measures.
Key highlights of the Indian economy
The central bank (RBI) cut the benchmark Repo rate by 25 bps to 7.25%. The Cash Reserve Ratio (CRR) was left unchanged at 4.00%.(Source: CSO)
Domestic growth remained disappointing. Annual Gross Domestic Product (GDP) growth for FY2013 was at a 10-year low of 5% in FY2013 vs. 6.2% in FY2012.
WPI (Wholesale Price Index) inflation decelerates below 5% in April. The deceleration in headline inflation was mainly due to a high base effect, deceleration in food prices and lower global commodity prices. (Source: CEIC)
Exports rose 1.6% from a year earlier to US$24.16 billion, up for the fourth straight month while imports rose 10.9% to US$41.95 billion. This resulted in a trade deficit of $17.8 billion in April’13, up 72% from that of March’13. (Data Source: CGA, Budget Document, Morgan Stanley Research)
Indian Rupee INR depreciated a significant 5% over the month. India’s foreign currency reserve reduced marginally to US$261 bn over the month. (Data Source: Reuters)
Foreign Institutional Investors (FIIs) were buyers and Domestic Institutional Investors (DIIs) sellers over the month. (Data Source: JP Morgan Research)
Domestic equity benchmarks - CNX Nifty and S&P BSE Sensex – gained 0.94% and 1.31% respectively in May tracking positive global and domestic cues.
Triggers.
Markets will likely be impacted by two important events over the next one year period.
The first one, national elections in India, is a local event.
The second one, how FED in US handles the interest rates and quantitative easing, may have global consequences.
A good monsoon season will also be beneficial.
Three consecutive months having average trade deficit of US 10-14 bn per month can also be a trigger to watch out for.
Outlook.
From a long term perspective of investing in equities, the only parameter that is missing today in India is a pick- up in growth. Remaining three parameters (Fiscal Deficit, CAD and Inflation) are appearing to be on the right path. Growth is expected to eventually pick up. How soon it does is not clear at this point in time. Maybe this year or the following one, but it is expected to pick-up.
While the level on Sensex may appear to be high, metrics are very different than those seen in 2007. On the valuation front, the market aggregates in our view do not reflect anything. The dichotomy of divergence in valuation of stocks remains.
Recommendation.
On account of political uncertainty and pre-election period the equity markets may remain volatile. We continue with our neutral stance on equities. From an asset allocation perspective, retail investors remain under-invested in equities. In our view, we are in a situation where people should still consider investing in equities.
Economic indicators in key developed economies surprised positively.
News out of US indicated improvements in the housing sector and employment conditions.
In Europe, the central bank reassured that lose monetary policy will continue as long as necessary. Growth is still proving to be elusive for the Euro zone economy largely on account of the Budget austerity measures.
Key highlights of the Indian economy
The central bank (RBI) cut the benchmark Repo rate by 25 bps to 7.25%. The Cash Reserve Ratio (CRR) was left unchanged at 4.00%.(Source: CSO)
Domestic growth remained disappointing. Annual Gross Domestic Product (GDP) growth for FY2013 was at a 10-year low of 5% in FY2013 vs. 6.2% in FY2012.
WPI (Wholesale Price Index) inflation decelerates below 5% in April. The deceleration in headline inflation was mainly due to a high base effect, deceleration in food prices and lower global commodity prices. (Source: CEIC)
Exports rose 1.6% from a year earlier to US$24.16 billion, up for the fourth straight month while imports rose 10.9% to US$41.95 billion. This resulted in a trade deficit of $17.8 billion in April’13, up 72% from that of March’13. (Data Source: CGA, Budget Document, Morgan Stanley Research)
Indian Rupee INR depreciated a significant 5% over the month. India’s foreign currency reserve reduced marginally to US$261 bn over the month. (Data Source: Reuters)
Foreign Institutional Investors (FIIs) were buyers and Domestic Institutional Investors (DIIs) sellers over the month. (Data Source: JP Morgan Research)
Domestic equity benchmarks - CNX Nifty and S&P BSE Sensex – gained 0.94% and 1.31% respectively in May tracking positive global and domestic cues.
Triggers.
Markets will likely be impacted by two important events over the next one year period.
The first one, national elections in India, is a local event.
The second one, how FED in US handles the interest rates and quantitative easing, may have global consequences.
A good monsoon season will also be beneficial.
Three consecutive months having average trade deficit of US 10-14 bn per month can also be a trigger to watch out for.
Outlook.
From a long term perspective of investing in equities, the only parameter that is missing today in India is a pick- up in growth. Remaining three parameters (Fiscal Deficit, CAD and Inflation) are appearing to be on the right path. Growth is expected to eventually pick up. How soon it does is not clear at this point in time. Maybe this year or the following one, but it is expected to pick-up.
While the level on Sensex may appear to be high, metrics are very different than those seen in 2007. On the valuation front, the market aggregates in our view do not reflect anything. The dichotomy of divergence in valuation of stocks remains.
Recommendation.
On account of political uncertainty and pre-election period the equity markets may remain volatile. We continue with our neutral stance on equities. From an asset allocation perspective, retail investors remain under-invested in equities. In our view, we are in a situation where people should still consider investing in equities.
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