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Dear Investors,

Warm Greetings!

The BSE, Sensex and Nifty indices gained 1% in April while BSE Midcap Index and BSE Smallcap Index fell 3.8% and 2.7% respectively. Rising crude prices and weak 4Q results for broader markets weighed on investor sentiment. Brent crude rose 6.4% during the month.

On the positive side, RBI cut the repo rate by 25 bps to 6% at the start of the month. The India Meteorological Department (IMD) forecast a near-normal monsoon in 2019. Market focus is presently on 4QFY19 results and the ongoing general elections. The results of the 2019 general elections will be declared on May 23.

CPI inflation came at 2.86% in March 2019, a five-month high. With this, average inflation in FY19 comes at 3.43%. As noted earlier, food prices have bottomed out. Food inflation has started increasing. Food and beverages inflation printed 0.7% in March, after five consecutive prints of negative inflation. Services inflation fell 30bps sequentially to 5.6%, largely driven by lower education and personal costs.

IIP growth fell to 0.1% for the month of February 2019 vs 1.4% in the previous month. While it grew at slowest rate in 20 months, it comes on back of a very high growth last year. IIP had grown at robust 6.9% in Feb 2018. The largest drag on growth came from slowing growth in capital goods and intermediate goods. While capital goods production fell 8.8% in Feb '19 (against an increase of 16.6% in Feb '18), intermediate goods production fell 4.9% from an increase of 3.4% twelve months ago. With this print, average IIP growth in the first 11 months of the year comes to 4%.

The Monetary Policy Committee (MPC) announced an expected 25bps cut in the repo rate to 6%. With 50bps of cumulative cuts in policy rates since February 2019, RBI is likely to push banks to transmit. Additionally, the MPC now expects 4QFY19 CPI inflation to moderate to 2.4% (2.8% earlier). It has also reduced inflation expectations for 1HFY20 and 2HFY20. It also revised down its FY2020 growth expectations to 7.2% (earlier 7.4%).

The Indian Meteorological Department (IMD) forecasts the southwest monsoon at 96% of Long Period Average (LPA) with a model error of (+/-)5%. This qualifies as a normal southwest monsoon though the probabilities are skewed towards the weaker side. Given the recent rural distress, a weak monsoon could raise challenges for rural growth.

FPI flows continue to be positive for the third month in a row. YTD FPI flows stood at USD 9.9bn. Just to recap, it was negative for the CY18. MFs are marginally negative for year to date. However, if one includes insurance companies, the domestic institutional investors are negative to the tune of USD 2.4bn for the year.

For the year markets are up by 8% now. While February and March saw rallies, April was a month of consolidation. May will depend on the outcome of elections. We remain constructive on Indian equities on medium to long term horizon as reforms being implemented are likely to start paying off over this period in terms of higher and sustainable growth and improved earning visibility.

Sanjay Chawla

Chief Investment Officer

Sources : Bloomberg, Economic Times

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