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Dear Investors,

BSE Sensex corrected by 5% during February 2018, reversing most of the gains registered in January'18. For the month of February, the BSE Sensex is up by only 0.4%. Most of the Global markets closed negatively. US markets were down by 4%, European by 7% and Asian markets were down by 5-6%.

Federal Reserve minutes were released during the month. Global investors sensed a much more hawkish stance from the minutes, which led to some sell off. Locally though, correction was largely led by concerns around fraud in public sector banks.

IIP was at 7.1% in December mainly due to favourable base from demonetization and the reducing impact of GST led disruption. Manufacturing activity, though lower than November’s 10% plus print, remained strong in high single digits (8.4% year-on-year). On trailing three months trend basis, capital goods, consumer non-durables and infrastructure showed strong growth. Consumer durables were weak. 

CPI inflation for January‘18 was 5.1% year-on-year, and 10bps lower than the previous month. The relatively elevated level of CPI is mainly due to low base and recent spike in vegetables, which though reversing, is high on YoY basis. Core CPI, ex-commodities – fuel and precious metals, remained largely stable at 5.1%, which is slightly elevated. Core CPI, ex-commodities and housing, was actually flat at 4.3%. The impact of GST tax cuts in some of the personal goods is not yet visible and may perhaps trickle down over ensuing months, helping CPI move lower.

Result season finally concluded. For Nifty companies, PAT growth came in at 6.5% YoY. On  headline basis, numbers may have been below expectations but dragged down by large negative surprises in SBI, Tata Motors and large-cap pharma. In fact, ex of SBI and Tata Motors earnings, growth was more decent at 12.9% YoY for Nifty.

The real GVA growth for 3QFY18 picked up to 6.7% from 6.2% in 2QFY18 largely led by pickup in industrial growth. Within industry, manufacturing and construction were key contributors. Agriculture and services sectors also improved. Current data indicated that the economy has mostly crawled out of the effects of demonetization and GST.

FPI flows were negative to the tune of USD1.6bn. Mutual funds were positive to the tune of USD2bn. Year to date FPIs are marginally positive to the tune of USD340mn while mutual funds have invested around USD3.4bn.

Currently, Nifty is trading at Price Earning of 19x for FY19 as per consensus earnings estimates. As per market 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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