We remain optimistic about Indian equities in the long run: Atul Kumar, Head Equity Funds, Quantum Long Term Equity Fund & Quantum Tax Saving Fund

India Infoline News Service | Mumbai | December 13, 2016 10:22 IST

S&P BSE Mid Cap Index fell 6.68%, while Small Cap Index dropped 8.32% during the month. On year-to-date basis, S&P BSE Sensex has risen 3.57%, as compared to 13.5% increase in S&P BSE Mid Cap Index and 5.11% rise in S&P BSE Small Cap Index.

In November 2016, the S&P BSE Sensex fell by 4.56% on total return basis. Mid-cap and small-cap stocks, which were doing quite well earlier, registered greater decline during the month. S&P BSE Mid Cap Index fell 6.68%, while Small Cap Index dropped 8.32% during the month. On year-to-date basis, S&P BSE Sensex has risen 3.57%, as compared to 13.5% increase in S&P BSE Mid Cap Index and 5.11% rise in S&P BSE Small Cap Index. Sectors which ended in the positive territory during the month were metals, telecom and power. Some of the sectors which registered the biggest decline were reality, consumer durables and auto.
 
FIIs were major sellers during the month, selling stocks worth US $ 2.6 billion. For the 11 months of the year so far, FIIs have purchased stocks worth US $ 4.15 billion. FIIs’ selling was offset by domestic institutions, who bought equities worth US $ 2.7 billion during the month. Among DIIs, mutual funds were the major buyers, accounting for purchases of US $ 1.9 billion. On a year-to-date basis, domestic institutions have invested US $ 4.1 billion. The Indian Rupee depreciated by 2.4% during the month against the US Dollar.


 
November was a busy month for global markets. The result of the US presidential elections was eagerly awaited by the financial markets. In a surprise, Donald Trump beat Hillary Clinton to the presidential seat. As expected, equity markets witnessed selling pressure. Most of the emerging market equities suffered losses. US bond yields rose sharply and US Dollar strengthened against other currencies. With the US GDP on an upswing, it is almost certain that the US central bank will increase interest rates in December. Rise in interest rates in the USA can lead to selloff in emerging market equities. India is also likely to be impacted.
 
Most of the other developed markets are witnessing economic stagnation. There has also been rhetoric of protectionism in large parts of the world, as can be seen by many election results. This is likely to hurt global trade, which itself hasn’t taken off since the global financial crisis. The developed countries (except the USA) are likely to continue with loose monetary policy in the foreseeable future.
 
Atul Kumar
The major economic event during the month was demonetization of Rs 500 and Rs 1,000 notes, which ceased to be legal tender from November 08, 2016 onwards. The purpose of this move was to unearth black money. Reports suggest that ~Rs12 trillion have already come into the banking system out of the ~Rs 15.5 trillion of demonetized currency in circulation. So far, it seems that the measure hasn’t yielded the desired results as many people have found ways to get around the system. On top of that, the implementation of the move was far from perfect. The shortage of new currency is likely to have a major negative impact on the economy in the short term.
 
Another significant event was the finalization of GST rates. GST is likely to be implemented in the next financial year and a four-tier structure has been agreed upon. This is different from the earlier proposed simple structure of single GST rate. The benefits envisioned earlier are likely to reduce.
 
We remain optimistic about Indian equities in the long run. Indian economy is unlikely to bear a major impact on account of unfavorable situations in other parts of the globe. In fact, India has been a beneficiary of fall in commodity and energy prices. India remains a bright spot in world equities, given the high GDP growth, which can continue over the long term. Investors can look to add to their portfolio weight in equity post the recent decline. Demonetisation has led to disruption of business activity and can impact GDP growth in the short term.
 
The author, Atul Kumar is Head Equity Funds, Quantum Long Term Equity Fund & Quantum Tax Saving Fund.

 

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