Even as the Indian economy gradually opens up, there has been a constant rise in daily COVID cases with the number now touching 60,000/day in India. This is in contrast to the global scenario which has seen a decrease in numbers over the last month. We have also seen a steady progress in terms of medicines & vaccines by different countries with Russia already claiming to coming out with a vaccine. On the back of positive global sentiments the NIFTY has been quite resilient over the last month, moving above the 11,000 mark. With the economy opening up gradually we should see improved activity, but increasing COVID 19 numbers daily remain a concern.
FII have been net buyers over the last few months, Rs.13,915 cr &, Rs.5493 cr & Rs.2490 cr respectively in May, June & July. They have been net buyers in August to the extent of Rs.10,813 cr till 10th August.
As per Association of Mutual Funds in India (AMFI), total AUM of the mutual fund industry rose Rs. 89,812 cr to Rs.27.11 lakh cr. A part of the gain also reflects mark-to-market gains for the industry. Equity mutual funds saw the first monthly net outflow in four years as investors preferred to book profits instead of staying invested, a sign that reflects declining cash flows of households and fear of a crash in the market. SIP inflows again slipped below Rs.8,000 cr level as pandemic hit cash flows of investors. SIP inflow in July fell to Rs.7,830 cr from Rs.7,927 cr in the previous month. Investors withdrew a net Rs.1,033 cr from multi cap funds while mid cap funds saw outflows of Rs.579 cr. Debt mutual fund schemes, on the other hand, saw a strong inflow of funds, with a net investment of Rs.91,391 cr. Liquid funds, short-duration funds, low duration fund and corporate bond fund stood out with net inflows in excess of Rs.10,000 cr for the month.
In global markets, gold rates touched multi year highs of ~$2050/oz as concerns over surging corona virus cases and simmering US-China tensions held up the safe-haven appeal of gold. Gold prices in India touched a high of ~Rs.56,000/10 gm. Gold has fallen in the last few days as US bond yields advanced and the dollar rebounded. The global risk sentiment improved after President Vladimir Putin said Russia cleared the world’s first Covid-19 vaccine for use though the vaccine is set to enter final trial. Gold and silver prices in India fell reflecting global cues. On MCX, October gold futures were ~ Rs.50,500/10 gram. Silver futures on MCX were at ~Rs.62000/kg down from a high of ~Rs.78000/kg last week.
Consumer price index (CPI) rose to 6.93% year-on-year, up from 6.23% in June, mainly because of a rise in food and petroleum prices. Consumer Food Price Index-based inflation (CFPI) rose to 9.62% in July, compared to 8.72% in the previous month. CPI based inflation came in above the monetary policy committee’s target band of 4% (with a margin of +/-2) for the fourth consecutive month in July. Last week, the RBI’s monetary policy committee kept key policy rates unchanged.
Index of Industrial Production (IIP) contracted sharply for the fourth straight month in June, though at a slower pace than in May, signaling gradual process of normalization of manufacturing activity. India’s factory output contracted 16.6% in June against 34% contraction in May. In June, manufacturing activity improved the sharpest with contraction in output coming down to 17.1% from 38.4% in May while contraction in mining (19.8%) and electricity (10%) sectors recovered only marginally. IIP contraction may come down to single digit in July as the pace of contraction of various lead indicators such as the output of Coal India Limited, electricity consumption and GST e-way bills narrowed to single-digits in July.
WPI inflation stood at -0.58% in July compared with -1.81% in June. Prices of food articles rose by 4.08% compared with a rise of 2.04% in the previous month. However, fuel and power basket inflation fell 9.84% in July, compared to 13.60% in the previous month. Manufactured products, however, witnessed inflation of 0.51% in July, as against 0.08% in June. Wholesale price index remained negative in July for the fourth month, showing that the wedge between rising consumer prices and falling wholesale prices persists. A difference in composition in the indices along with supply disruptions in some categories may be causing the divergence.
The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) declined slightly in July to 46 from 47.2 in June. The India Services Business Activity Index, stood at 34.2 in July compared with 33.7 in June. Consequently, the Composite PMI, measuring services and manufacturing activity together, fell to 37.2 in July from 37.8 in June. Still, it remains below the crucial 50 level.
Frequent mentions of lock down measures, weak demand conditions and the temporary suspension of company operations continued to weigh on activity.
Indian Oil Corporation Ltd (IOC), the country’s largest fuel retailer said that its capacity utilization, which had increased to around 93% in the first week of July, has come down to 75% in August on account of many state governments imposing fresh lock down measures.
As per SIAM total passenger vehicle sales declined 3.86% to 1,82,779 units in July. Sales of two-wheelers came in at 12,81,354 units in July, a decrease of 15.24%. After few consecutive of months of plummeted sales in a post-Covid scenario, there are signs of green-shoots in passenger vehicles and two-wheelers, where the year-on-year de-growth is much lesser than the previous months. Weather these numbers sustain in August needs to be seen. While SIAM did not reveal the sales performance of the CV segment for the month of July, CVs registered an 85% de-growth in the Q1 of FY21 between April and June with overall sales of 31,636 units.
As per the IMD, since the onset of monsoon over Kerala on 1st June, until 30 July, the country had received one percent more rainfall than normal. Monsoon is likely to be normal in the second half of the four-month rainfall season. Quantitatively, the rainfall over the country as a whole during the second half of the season is likely to be 104% of LPA with a model error of +/- 8%.
The government collected GST or Goods and Services Tax stood at Rs. 87,422 cr in July, data from the Finance Ministry’s Department of Revenue showed. That marked a decline of 3.84% compared to June, and 14.36% compared to July 2019. Out of the total gross revenue collected in July, CGST or central goods and services tax accounted for Rs. 16,147 cr, SGST (state goods and services tax) Rs. 21,418 cr and IGST (integrated GST) Rs. 42,592 cr (including Rs. 20,324 cr collected on imports).
India could witness a negative growth of 4.5% in 2020 fiscal, but could grow at a healthy growth rate of 6.3% in 2021 fiscal, Country Risk & Global Outlook report by Dun & Bradstreet released in August said. The global outlook report juxtaposes the global growth vis a vis Corona pandemic and how various countries are dealing with it. As per the report China would grow at 2% in 2020 fiscal and 5.5% in 2021 fiscal. US GDP would shrink by 5.3% in 2020 fiscal as against 2.9% growth in 2021 fiscal. Japan’s growth rate too would dip to negative 5.6% in 2020 as against 1.3% growth in 2021 fiscal, the report said.
The number of people infected by the corona virus in India crossed 2.4 mn, nearly six months after the country reported its first case. Now the daily run rate of affected cases is in excess of 60,000. The US and Brazil are the only countries that have registered cases in excess of this figure, although the pace of spread there has been much faster. The pandemic has so far claimed more than 48,000 lives in India. Relative to population, India’s numbers are still low, but the steep rise in absolute numbers risks overwhelming the healthcare system, apart from triggering more restrictions that are already hampering economic recovery.
The front line indexes have moved up significantly over the last month largely due to positive global cues as numbers have largely been contained across the globe. The broader markets, for a change have been participating in the recovery over the last couple of months. Some quality beaten down large cap and mid cap stocks & PSUs are back in focus. We recommend focus on business with non-discretionary products & services, food, agriculture etc currently. Businesses with discretionary products & services may still take a few months to recover.
We have been impacted by low GST & tax collections, de growth in GDP & IIP numbers over the last couple of months. Higher than expected retail inflation and negative WPI numbers aggravate concerns of a deflation. We are in the midst of a global pandemic & lock down, though I believe that we have already overcome the worst of times & expect things to only improve from here across the globe. Fund flows both on the FII and DII front remain strong providing support to the markets. We strongly advise investors to continue their SIPs in equity funds & if possible increase the amount. This is a very good buy on dips market & should be bought in a staggered manner.
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 12 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata. He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’