Equity Outlook - May 2016 - Axis Mutual Fund

EQUITY. OUTLOOK. JUNE 2016. Quick take. -3.2%. Nifty 50 - Last 1 year. Key highlights. 4.0%. Nifty 50 - MTD. • Equity market valuations are broadly reasonable. • We remain bullish on equities from a medium to long term perspective. • Investors are suggested to have their asset allocation plan based on one's risk appetite ...
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Nifty 50 - Last 5 years



Nifty 50 - Last 1 year


Nifty 50 - MTD

Quick take •

Equity market valuations are broadly reasonable.

We remain bullish on equities from a medium to long term perspective.

Investors are suggested to have their asset allocation plan based on one’s risk appetite and future goals in life.

Key highlights GLOBAL

Indian equities continued to move higher in May. The Nifty is now up 17% from its lows in February. The overall sentiment has improved markedly helped by renewed foreign flows, improvement in domestic environment and progress in policy rollout. Global equity markets continued their move higher. Crude continued higher as well even though other commodities were weaker after their sharp rallies in March and April. The US Fed is widely expected to raise rates in its June meeting even as US and global growth remains tepid. The Indian market sentiment was helped by forecasts of an above normal monsoon. Skymet raised Indian monsoon forecast to 109% for the period of Jun to Sep. In Apr Indian Met department had forecasted rainfall at 106% for the 2016 southwest monsoon. This compares with 88% and 86% rainfall received in the 2014 and 2015 season respectively. Q4 GDP growth came at 7.9% which was better than the Q3 number of 7.2%. Growth was led by consumption while investment remained a drag.


Recent macro and high frequency data indicate a gradual (but uneven) cyclical recovery is underway that should push GDP growth higher over the next year. Industrial production and PMI (both manufacturing and services) have shown an improving trend but remain highly volatile. Going forward, impact of pay commission awards should help urban discretionary consumption. Likewise a normal monsoon should help push rural demand. The government is seeing good progress in implementing its reform agenda. Bankruptcy bill was passed by the parliament and is a key part of the government’s focus on improving ease of doing business in India. India’s external accounts have remained comfortable even as the BoP surplus has narrowed in the absence of large portfolio inflows. The Indian Rupee, which had seen some weakness at the beginning of the year, has stabilized in the last few months broadly tracking the performance of other Asian currencies.


Inflation trajectory remains within the RBI’s comfort zone, and further cushion on inflation should come as food inflation moderates. While further policy rate cuts are likely limited, better transmission and changed liquidity stance, should lead to lower rates over the next 12 months. Q4 earnings were reflected a modest improvement in trend from the previous quarters. Sectors linked to infrastructure and industrial capex remain subdued. Over the medium term earnings should start reflecting the improvement in the growth environment and has the potential to run ahead of nominal economic growth as the cycle strengthens.

Top 10 Stocks (By Holding)


The fund focuses on delivering superior risk adjusted returns. The fund manager targets out-performance to the benchmark while delivering risk that is lower than the benchmark. Stocks are selected in the portfolio based on their ability to grow earnings on a sustainable basis from a medium term perspective while maintaining a highly liquid and risk managed portfolio. While the approach of the fund manager is towards have a stable portfolio over the medium term, the fund manager makes adjustments as needed as it looks at the evolving cycle and prospects for corporate earnings. As the economy shows steady improvement, the fund manager has constructed the portfolio with companies that should be able to take advantage of this cyclical improvement to grow topline and earnin