The Indian equity market was marginally positive in July 2014 with Nifty moving up another 1.4%. Pharma and FMCG stocks were winner of the month as they moved higher by 9.5% and 7.7%, respectively. On the other hand, Realty and Energy stocks were worst performer with indices moving down by 8.4% and 4.6%, respectively.Small cap stocks also lost ground in July’14 as they moved lower by 6.1% after 5 months of consecutive gain.
Ytd july 14 performance review
Chart1: July’14 Performance
On YTD basis, small cap stocks (+46.2%) maintained the lead followed distantly by mid cap stocks (33.6%). In sector terms, banking stocks (+34.1%) took lead over realty stocks (+28%) in July 14. IT (+8.9%) and FMCG (+10.1%)stocks remained the worst performed on YTD basis.
Union Budget was the most important and awaited event in July 14. However, the main Indian stock indices declined during the budget week after Finance Minister Arun Jaitley presented a mixedbag Union Budget. While there were adequate measures to boost economic growth and maintain fiscal discipline, lack of major reforms like GST roadmap and subsidy reduction left investors disappointed.
FIIs inflows continued to be robust in July 14 driven by an investment friendly government at the centre; overseas investors have pumped in a staggering $6 bln into the Indian securities market in July taking their overall net inflows since beginning of 2014 to more than $26 bln.
Foreign investors have poured in $2.18 bln (Rs 13,124 crore) into the equity markets. They made net investments worth $3.83 bln (Rs 22,977.65 crore) in debt securities, during July the highest inflow for a month so far this year.
Chart 2: YTD (July’14) performance
Some important domestic headlines that impacted Indian equity market include:
- India’s factory output grew at the fastest pace in 17 months last month, according to the HSBC PMI. The manufacturing PMI rose to 53.0 in July from 51.5 in June, its highest since Feb. 2013.
- The nationwide average rain during July was 260.8mm, close to the prediction of 93% rains for July madeby the India Meteorological Department (IMD). Seasonal deficit is now down to 22% versus 43% at the end of June.
On the international front, following headlines turned out to be market mover:
- The US economy rebounded in 2Q2014 and expanded at the fastest pace since last fall, fueled by an upturn in consumer spending on big-ticket items such as cars and trucks besides a sharp rebound in business investment.The Fed said that the US economy is improving but emphasized that significant slack remains in the labor market. The central bank gave no hint of timing of the first rate hike.
- Standard & Poor’s Ratings Services declared Argentina in “selective default” after talks aimed at a settlement with holdout creditors fell apart late on Wednesday. Argentine stocks sank over 8% after the default news.
- Federal Reserve Chairwoman Janet Yellen told Congress that the US central bank could act sooner on interest rates if the labor market keeps surprising. But, she added, that time is not yet here. The Fed’s Beige Book said that economic conditions and labor markets showed improvement across the US into early July.
- China government said that its economy grew faster than expected in 2Q – rising by 7.5% YoY while June retail sales were up 12.4% and industrial output jumped 9.2%. Elsewhere in Asia, the Bank of Japan scaled down its GDP forecast but kept monetary policy unchanged.
- The US economy added 288,000 new jobs in June, and the unemployment rate fell to 6.1%. Meanwhile, weekly jobless claims, a proxy for layoffs, increased by 2,000 to 315,000 in the week ended June 28, hovering near a post-recession low for several months.
Indian stocks appears stable to positive over the medium-term to long-term, as the new Government is expected to start addressing the imbalances in the economy. Foreign investors have been betting big on the Indian market mainly on account of a stable and reforms-oriented government at the centre.Globally, investors will continue to track the ongoing economic recovery in the US, rebalancing in China and impact of latest ECB easing on the Eurozone economy.