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Dear Investors,

Warm Greetings!

Markets rallied by 7% during the month, reversing two months of sluggish performance. Rally was led by strong FPI flows, positive sentiments emanating from opinion polls, optimism over US China trade negotiations and de-escalation in geopolitical tensions between India and Pakistan. With news channels indicating seats swinging towards the NDA alliance, markets have reacted positively with March marking the beginning of the pre- election rally.

Consequently, underperformance vs global markets has now reduced with Indian markets rallying by 7% year to date, vs 10% by US and European markets. For a change, mid cap and small cap indices too rallied in line with broader markets. Amongst sectors, banks, realty, consumer durables and energy were top performers while Auto, IT and FMCG underperformed the broader markets.

IIP for January came at 1.7%, lower than 2.4% in December. Sluggish global economy and tight domestic liquidity seem to be weighing on domestic industrial activity. On a three month moving average basis, IIP has slowed sharply to 1.5%. Among sectors, capital goods slowed sharply (flat on trend basis). Consumer durables growth has also lost steam owing to weak auto sales. Labour-intensive sectors (textiles, gems & jewellery, leather, etc) continued to struggle, contracting on trend basis on a weak base.

CPI inflation came at 2.6% in Feb ’19 after four months secular decline. Inflation number for Jan ’19 was revised lower to 1.9%. In Feb ’18 CPI stood at 4.4%. Average headline inflation in the first eleven months of FY19 stands at 3.5%. Food and beverages inflation, which printed -1.7%, -1.6% and -1.3% during Nov ’18, Dec’ 18 and Jan ’19, came in at -0.1% in Feb ’19. Since food accounts for ~46% of CPI basket, rising food inflation almost singlehandedly added 60bps to headline inflation on a sequential basis. Within food, most of the increase in inflation was due to dearer vegetables. Core inflation came in at 5.3% in Feb ’19 compared with 5.1% twelve months ago. Housing inflation continued to decline since the impact of 7th Pay Commission related HRA increases faded out of calculation. Resultantly, housing’s contribution to core inflation fell by 70bps during the said period.

In March, FPIs were net buyers to the tune of USD 4.7bn while MFs turned net sellers to the tune of USD1bn. On YTD basis FPIs are net buyers to the tune of USD7bn while MFs are buyers to the tune of USD270mn.

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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