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Dear Investors,

Stock markets continued to correct, with BSE Sensex losing ground by 4 % during the month of March. Year to date, Sensex is down by 2% and has corrected by 9% from its recent January peak. Concerns on global trade war and political uncertainties locally lead to sharp correction. Amongst sectors, BSE metals, realty and healthcare were the worst performers while IT and FMCG outperformed. 

Concerns on global trade war increased after US government imposed tariffs on steel and aluminum imports. China also retaliated by imposing tariffs on food items imported from US. While a full blown trade war is unlikely, historically trade wars have led to shrinkage in global GDP and higher inflation levels.

Election results for 3 bye-polls – 2 in the state of UP and 1 in the state of Bihar came out during the month and the BJP lost out in all 3 of them. While these results had no implications to overall numbers, a section of the market did view this as another political setback for the BJP.

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CPI inflation eased for second consecutive month in February to 4.4%YoY from 5.1% last month.  Most of the fall was on the back of sharp sequential contraction in the food segment. Food inflation eased to 3.3% from 4.7% in January, with 1.5% sequential contraction across almost all food items such as vegetables, pulses, protein items, etc. CPI (Ex Food, Fuel, Pan & Tobacco) stood at 5.04% YoY, almost unchanged from the last month’s 5%.
January’s IIP growth further strengthened to 7.5% YoY. Manufacturing growth was strong at 8.7% YoY for January. Within the use based classification, growth in capital goods production remained firm and registered a double digit growth of 14.6% for the third consecutive month in January.  Infrastructure and construction goods growth was also strong at 6.8% while production of consumer durable and non-durable goods rose respectively by 8% and 10.5% YoY. Some of the industries that exhibited strong growth in January were food products, beverages, pharmaceuticals, non-metallic mineral products, coke and refined petroleum products, motor vehicles etc.

As widely expected, Fed funds rate was raised by 25bps to 1.50%-2.00%. Fed statement is hawkish, however conference commentary was largely neutral. Fed policy is likely to remain accommodative and interest rates to rise gradually. Seven of the fifteen Fed officials are now looking at three more rate hikes in 2018 vs. 4 Fed officials in December policy.

FPIs returned as net buyers in Indian equities in March 2018 with USD 2bn of equity inflows during the month which took their YTD buying total to USD 2.2bn. Mutual Funds contributed USD 0.7bn to the net with USD 4.5bn of net inflows during the year. 

Currently, Nifty is trading at Price Earning of 18x for FY19 consensus earnings estimates. Consensus earnings growth of 16% CAGR may be expected for two years, which could see some moderation going forward. We remain cautiously optimistic on equity markets.

Sanjay Chawla
Chief Investment Officer

Source: Bloomberg, Economic Times
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