MARKET
UPDATE
Equity
Market
Despite the continued rally, market valuation remains broadly
reasonable.
• RBI cut its policy rates by
0.25% in January.
• We remain bullish on equities from a medium to long term
perspective.
January was a topsy-turvy month for global markets. US markets were
volatile and closed down for the month.
Volatility levels in the US have gone up in the last few months
after being close to multi-year lows in the first half of 2014. European
equities were up for the month while emerging markets were flat. Central banks
continued to determine market sentiment - ECB initiated bond purchases, while
the Swiss central bank gave up its policy of defending the Swiss currency level
against the Euro. US Fed reiterated the likelihood of rate hike during the
course of the year. In case of commodities, while crude oil continued its fall,
Gold had a big rally.
Indian equities started 2015 on a positive note. CNX Nifty
closed the month up 6.3%. Midcap index trailed the large cap index.
Infrastructure, Financials and rate sensitive sectors performed well, while
commodity stocks continued to lag.
RBI cut its policy rates by 0.25% in January. While the action
was widely expected, the timing surprised the market as it was done out of the
scheduled policy review calendar. The case for rate cut was pretty clear over
the last few months as inflation had fallen sharply and seemed well within the
glide path set by RBI. Market expects the RBI to carry out a series of cuts
over the next 12-18 months. Lower interest rates should help revive growth and
bring down funding costs for companies. On the government policy front,
attention is focused on the union budget scheduled for February. The fiscal
numbers will get a big boost from the fall in crude oil prices. There has been
discussion on increasing public investments in order to jump-start growth.
However the same will need to be balanced by the need to maintain the path for
fiscal consolidation.
Reporting of quarterly earnings for the December quarter is
currently underway. The expectations from the quarter have been modest given
the continued weakness in the economy so far. Results declared so far have been
broadly as per market expectations. Despite the continued rally, market
valuation remains broadly reasonable. We remain bullish on equities from a
medium to long term perspective. Investors are suggested to have their asset
allocation plan based on one’s risk appetite and future goals in life.
Debt Market
• We expect RBI to cut rates further over the next 6-12 months.
• Domestic data continues to be supportive for the bond market.
• Investors with risk appetite should look to add duration in
their bond portfolios while those with lower risk profile may look for shorter
duration funds.
Bonds rallied sharply across the curve in January as the RBI
initiated the rate-cut cycle.While the rate cut was widely expected by the
market – especially after the previous policy review of the RBI – the timing
had been a bit uncertain.
The RBI chose to surprise the markets by not waiting for the
next policy review date in February.This is expected to be the first in a
series of rate cuts over the next 12-18 months. The benchmark 10 year yield
moved from 7.86% to end the month at 7.69%.
Crude oil
continued its sharp fall in January. Fall in crude has allowed the government
to hike excise duties and also bring down retail sales prices and this should
help lowering inflation further & benefit the economic revival.
After a period of weakness, the Rupee had a sharp rally in
January. Foreign investor flows (both in debt and equity) remain robust and the
current account deficit is falling sharply thanks to the lower commodity prices
(especially crude oil). India continues to remain in a much stronger position
on the external front compared to most EMs. Our FX eserves have also continued
to rise.
We expect RBI to cut rates further over the next 6-12 months.
Investors with risk appetite shouldlook to add duration in their bond
portfolios while those with lower risk profile may look for shorter duration
funds.
Mantra : Be invested both in Equity from medium to long duration & debt
for all tenure.
Regards
Kajal Gupta
(+919830293134)
