Use the opportunity to allocate more to equities, says Atul Kumar of Quantum Mutual Fund

By Atul Kumar

S&P BSE Sensex appreciated 3.9% in October. BSE Midcap and Smallcap indices also did reasonably well, with the rise of 5.4% and 3.0% respectively. In 10 months in this calendar year, the BSE Sensex has given a reasonable return of 12.5%.

In contrast, mid cap and small cap indices still have to recoup their losses in 2019. On year to date basis, BSE Midcap and BSE Smallcap indices are still down 2.9% and 6.9% respectively.


Auto, oil & gas and PSUs were the best performing sectors during October. Telecom, IT and capital goods sectors were beaten down during the month. Telecom sector was slapped with penalty of approximately Rs 900 billion by a ruling of Supreme Court, hurting an already stressed industry.

Market Performance at Glance
	Market Returns %*
	October 2019
S&P BSE SENSEX **	3.9%
S&P BSE MID CAP **	5.4%
S&P BSE SMALL CAP **	3.0%
BEST PERFORMER SECTORS	Auto, Oil & Gas and PSUs
LAGGARD SECTORS	Telecom, IT and Capital Goods
*On Total Return Basis
**Source – Bloomberg

FIIs were net buyers in the month ($2.1 billion). In 2019 so far, they have put $10.2 billion in Indian stocks. DIIs invested $ 0.7 billion and $7.2 billion cumulatively in 10 months of 2019. While mutual funds have been net buyers, insurers are sellers among DIIs. Rupee depreciated 0.1% during the month against US dollar.

On the global economy front, US central banks cut interest rates during the month. This is the 3rd cut during 2019, and probably the last as per the US Fed. Unemployment remains at record low levels in the US. S&P 500, a benchmark for US equities, touched a record high. In other developed markets such as Japan and Eurozone, interest rates are in the negative territory. Eurozone led by Germany faces recession due to trade wars.

Global markets had a run up on news that the US and China had reached an agreement on trade sanctions. Brexit deal was also stitched with EU, even as it remains to be passed by the UK Parliament.

In India, RBI cut interest rates expectedly as economic growth has stalled and inflation remains subdued. Economic activity as measured by core sectors’ performance continues to remain below average. There has been news of more stimulus coming from the government which could take the form of cut in personal tax rates and sops to builders/home buyers.

October also was the festive season which traditionally sees big consumer spending. Some sectors such as auto pinned hope on this to rev up their sales. Sales for auto sector were relatively good during the month. The pace is unlikely to sustain as a lot of discounts were offered on product as well as financing.

Many companies have reported their second quarter results. Profitability of Nifty companies seems to grow at 13%, which is lower than 20% levels projected at the start of the year. This has been the case since 2014, and bullish sell-side estimates have belied reality.

Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many nations. The economy is dependent on domestic consumption and thus insulated from any global problems. While economic growth faces pressure in the near term, better monsoon and measures to ease liquidity are likely to stimulate growth. Events like global trade wars have very limited impact on the Indian economy. Investors can expect good returns from equities over a long period in the future. Investors should use this opportunity to allocate to equities. Even though markets appear at an all-time high, this is driven only by selective stocks.

(Atul Kumar is the head-equities at Quantum Mutual Fund)