ICICI Securities Ltd.

| Retail MF Research



Equity Markets
Update
After having delivered over 9% return in October, domestic equity
benchmarks were volatile during November, delivering negative return
of 1.8%. However, markets touched their all-time high levels on
euphoria after results for state elections were announced on
expectations that the BJP led NDA government will be able to garner a
decisive mandate in the general election in 2014
Midcap and small cap indices, however, continued their upward march
with both indices ending the month with gains of 2% and 3.4%,
respectively. Capital goods and metals were the best performing
sectors during the month with gains of 7.3% and 2.6%, respectively.
Consumer durables, with a fall of 8.9%, was the worst performing
sector during November
India's September quarter GDP growth came in at 4.8%, a little better
than market expectations. Strong agricultural growth of 4.6% YoY was
one of the key reasons for the positive surprise in this quarter. The
industrial sector also recorded positive growth (1.6% YoY) after drifting
into the red last quarter. Services sector growth tapered down to 5.8%
YoY during the quarter, primarily due to a sharp fall in community,
social, and personal services
The overall Q2FY14 result season was marginally better than market
expectations. Sensex companies recorded a good set of Q2FY14
numbers with topline and PAT growing ~14% and ~11% YoY,
respectively. Sales growth was largely driven by heavyweight sectors
like auto, IT and pharma largely on account of seasonality and a positive
currency impact. Currency depreciation was a big boon for all export
oriented players with almost all of them registering strong profit
growth. Domestic consumption, however, continued to remain weak
Inflation continued to remain a key challenge for policy makers with
both WPI and CPI inflation moving up in October. While WPI came in at
7%, CPI breached the 10% mark yet again, clearly indicating that
inflation pressures persist
Outlook
The improvement in current account deficit and stabilisation of currency
along with some improvement in GDP growth has also improved
market sentiments, to a certain extent
However, other leading indicators like auto sales, cement dispatches, a
further rate hike by the RBI due to higher inflation, below average IIP
growth and signs of slowing domestic consumption continue to point
towards below average growth in the term
Significant foreign inflows are driving markets to all-time high levels
discounting the improvement in growth, going forward, on the back of
the BJP led NDA government. We think it is premature to extrapolate
the state election results to general election results
Those running systematic investment plans should continue to do so.
With the BSE Sensex at an all-time high, the markets have entered
uncharted territory. However, given that the Indian economy is slowly
beginning to gain ground and foreign investors continue to favour India,
it is unlikely that markets could change course on the downside,
notwithstanding small corrections
CNX Nifty : Volatile in current year
5200
5400
5600
5800
6000
6200
6400
6600
J
a
n
-
1
3
F
e
b
-
1
3
M
a
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-
1
3
A
p
r
-
1
3
M
a
y
-
1
3
J
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-
1
3
J
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l
-
1
3
A
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g
-
1
3
S
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p
-
1
3
O
c
t
-
1
3
N
o
v
-
1
3
D
e
c
-
1
3

Source: Bloomberg, ICICIdirect.com Research
Sharp pullback from recent low
6
.
6
3
.
4
0
.
5
-
1
0
.
1
-
1
5
.
8
-20
-15
-10
-5
0
5
10
BSE
Sensex
BSE 100 BSE 500 BSE
Midcap
BSE
Small
Cap
R
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t
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n

(
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Source: Bloomberg, ICICIdirect.com Research
Returns : CY13 YTD
Rally led by cyclicals
5
6
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8
.
8
6
.
6
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5
.
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8
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0
20
40
60
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I
T

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&
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D
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R
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(
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Source: Bloomberg, ICICIdirect.com Research
Returns : CY13 YTD

Analysts name
Sachin Jain
sachin.ja@icicisecurities.com

Sheetal Ashar
sheetal.ashar@icicisecurites.com