The BSE-30 and Nifty-50 indices fell 1.5% and 0.4% in April 2021
underperforming other global markets over the last one month. Sectorally,
metals, healthcare gained by 24% and 10% respectively, while capital
goods, realty, consumers, Auto and IT underperformed. Sharp increase in
Covid cases, shortage of medical supplies, imposition of strict
lockdowns, weak macroeconomic data seem to have dented investor
Recently, India is witnessing a significant increase in covid cases. Daily
infection has increased from around 50,000 to over 3.5 lakhs end of April
2021. Consequently, death rates too have increased during this time frame.
Many state governments have announced localised lockdown to combat the
spread of virus. While the Indian Government has announced that people over
18 years are now eligible for Vaccination, availability of the same
considering low capacity seems to a serious concern.
In the Monetary policy in April, The Monetary Policy Committee (MPC
)maintained status quo on rates and stance which is in line with market
expectation. Repo rate unchanged at 4%. Reverse repo and Marginal Standing
Facility rate unchanged at 3.35% and 4.25% respectively. Stance remains
“accommodative”. All six members voted for keeping repo rate unchanged and
for retaining “accommodative” stance. The “accommodative” stance to continue
as long as necessary to sustain growth on a durable basis and to mitigate
the impact of COVID-19 on the economy, while ensuring that inflation remains
within the target going forward.
In US, the Fed Chair Jerome Powell acknowledged the economy's growth, but
said there was not yet enough evidence of substantial further progress
toward recovery to warrant a change in policy. The Fed has been purchasing
$120 billion of government-backed debt a month since June 2020, but is
expected to reduce that as the economy improves.
Index for Industrial Production (IIP) for February contracted 3.6% YoY. Part
of the weakness was due to lower production days in February compared to
base period (leap year). Adjusting for the same, IIP remains stuck at 0-1%
in the past six months when the economy was unlocking and had the tailwind
of pent-up demand.
March Consumer Price Index (CPI) inflation came in at 5.5% YoY (5.0% in
February). The rise was largely on food inflation, which rose 90bps
sequentially owing to a large fall in the base period. Within food, cereal
prices deflated further and milk inflation also remained benign (2.2% YoY).
However, edible oils marched higher despite stable base and even the level
remains high (up 25% YoY). Apart from these, disinflationary trends in
pulses, meat and fish seemed to have reversed in March. Core inflation
(excluding commodities like gold, silver, petrol and diesel) was stable at
5%. Within core inflation, while housing inflation moderated further to 3%,
transport & communication, clothing and recreation moved higher.
In terms of flows, Foreign Portfolio Investors (FPIs) turned net sellers to
the tune of USD1.3bn while Domestic institutional investors (DIIs) remained
net buyers for the month of April 2021 as well.
Nifty index is up 4.4% during the year till date The rally so far was led by
liquidity, expectations of strong earnings growth in FY22/23E. With
significant increase in Covid cases, these estimates could see some cuts.
While near term looks hazy, stock valuations may eventually reflect its long
term prospects. We remain cautiously optimistic on equities.
Chief Investment Officer
Source: Mohfw.gov.in, RBI, Kotak Securities, Edelweiss Financial
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