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Dear Investors,
 
SC.jpgStock markets were up by 0.5% during May 2018. YTD markets are up by 4% now. Midcap and small cap indices corrected further during the month. YTD midcap and small cap indices are down by 12% and 19% respectively. Amongst sectors Pharma, Realty, PSU and Auto have underperformed while IT, FMCG and Financial sectors have outperformed. Globally, performance were mixed with emerging markets such as Brazil reporting declines while developed markets were up by around 2%.
 
India’s real GDP growth picked up to 7.7% in Q4FY18 vs. 7% in Q3FY18 and 6.1% in Q4FY17. A sharp jump in fixed investment (GFCF) growth to 14.4% and 16.8% jump in Govt. expenditure are the two main contributors to higher GDP growth in Q4FY18. Household consumption growth also rose to 6.7% in Q4FY18 from 5.9% in Q3FY18. Construction activities grew 11.5% in Q4 FY18, following 6.6% jump in Q3FY18.
 
IIP numbers disappointed. IIP for March grew to 4.4%, a sharp moderation from the 7% plus growth clocked in the past four months. The slowdown was largely on the manufacturing front, which slowed from past four months’ average of 9.0% to 4.4%. Electricity and mining remained largely stable 3% and 6%, respectively. Part of the moderation is clearly base effect led, but manufacturing growth was subdued even on month on month basis.
 
CPI inflation rose from 4.3% in Mar’18 to 4.6% in Apr’18, led by uptick in services inflation, which surged from 4.2% in Mar’18 to 5.0% in Apr’18. Key highlight is Core inflation (excl. food &fuel) which jumped to 6.1% in Apr’18, a 45-month high, up from 5.3% in Mar’18, mainly led by increase in transport inflation. Food inflation softened from 3.1% in Mar’18 to 3% in Apr’18, pulled down by a sharp decline in prices of vegetable and sugar. Housing inflation further inched up to 8.5% in Apr’18 from 8.3% in Mar’17.
 
FPIs were net sellers in Indian equities in May with USD765mn of equity outflows during the month, which took their YTD buying down to USD530mnn. Mutual funds were net buyers to the tune of USD2bn during the month and YTD buying of USD9bn.
 
4Q results season is largely over. Nifty PAT declined by 1.3% YoY during 4QFY18. Weakness in earnings was led by accelerated NPA recognition in banks, weakness in Oil & Gas segment, one-offs in few companies and a high base. Ex-financials and Oil & Gas, Nifty PAT increased 9.8% YoY, which is better than expected.  Currently, Nifty is trading at PE of 19x for FY19 consensus earnings estimates. As per consensus earnings growth of 21% 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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