Outlook Money – 01.03.2018

range of `9.5 lakh crore by end of this

fiscal, can spike further. We estimate

over `50,000 crore of additions in

the next couple of quarters, as more

disclosures pour in. This would mean

that Q4 FY18 bank earnings may

throw negative surprises. If that is the

case, markets may try to factor in the

negativity in March. Private banks

have seen improvement in both asset

quality and loan growth in the last

quarter.

In the Indian equity markets,

mutual fund is setting new records.

SIP flows crossed `6,644 crore in

January 2018 compared to `6,222

crore in December 2017. The

monthly flows have seen more

than 50 per cent growth since the

beginning of the financial year.

In the absence of other lucrative

investment avenues, liquidity into

the capital market from domestic

investors continues. The sustained

retail investment may find its way

into select stocks in March and may

outweigh foreign fund flows.

The factor that may tilt the worry

now rests upon on US markets in the

short term, which shows stronger

growth and corporate earnings. The

correction has not fundamentally

altered the prospect, but rather put

the focus back on volatility and risk.

We can see this being mirrored

across the globe and its impact on

our market. Thus, after a stupendous

run it is time we let the technicals

play out and consolidate through

March series for a much required

bottoming-out process.

The India growth story will remain intact in the long

term despite fewer fund activities in the short term

March Likely To Be A Turning

Point For Indian Equity Markets

T

he Indian equity market

has seen a dream run in

the last two years, but

February has given a

reality check post the Union Budget,

global risk-off and the fallout from

the Punjab National Bank (PNB)

saga. March is likely to be a turning

point. It would be interesting to see

whether the rally can be sustained

beyond March with valuations

catching up in some sectors and

sustained retail investments through

mutual funds. There is also the

risk of foreign fund outflow and

overstretched valuations in some

sectors hitting the ground, while

the PSU bank mess may also play

spoilsport. Corrections in select

mid-cap and small-cap counters may

continue into March.

In February, developments in

US bond and stock markets threw

a spanner into otherwise smooth

sailing Indian equities had, with

a strong tailwind of liquidity. The

sharpest corrections post 2008

unsettled many equations and

forced market participants to focus

on risk and taper down return

expectations on richly valued equity

assets. Global markets with stronger

growth and resultant inflation is

looking at a yield of three per cent

and beyond for US 10-year bond

yield. Rising inflation and stiffening

yield (albeit on a lower growth

backdrop) come at a time when we

are about to cherish the first sign of

consumer demand coming back into

the domestic market. March would

Sustained retail

investment into mutual

funds may outweigh

foreign fund flows

be a time when many global fund

managers would have to decide

their allocation for India, based on

these dynamics. While I believe the

India growth story would remain

intact in the medium-to-long-term,

from short-term considerations,

March might see fewer fund

activities.

The quarterly (Q3 FY18) results

of sectors such as IT, metals and

cement were encouraging, and

FMCG companies posted higher

volumes and better margins. In

2017, in spite of disruptions both in

terms of sentiment and framework,

the Nifty FMCG Index posted best

performance over the preceding

five-year period. This trend is

expected to last, aided by Budget

announcements on rural priorities.

But there are disappointments

when one looks at the banking

sector – more specifically PSU

banks. Mounting losses and no sign

of slippages receding are taking the

sheen out of the recapitalisation

plan, making it appear rather

inadequate. A stricter NPA regime

unveiled by RBI in February 2018

adds to the woes of the banking

sector in the short term. NPAs,

which have gone up almost threefold

since 2015 and slated to be in the

Market Outlook

ArindAM ChAndA

Executive Director & Head,

Retail Broking, IIFL

http://www.outlookmoney.com March 2018 Outlook Money 75