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Dear Investors,

Warm Greetings!

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 sentiments.

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.

Sanjay Chawla

Chief Investment Officer

Source:, RBI, Kotak Securities, Edelweiss Financial

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