Stock Market Newsletter – September 2020

 

“Everyone has the brainpower to make money in stocks. Not everyone has the stomach.” – Peter Lynch.

For September, in line with global stock markets, Indian markets witnessed sufficient volatility. After three months of gains between Jun to Aug, Nifty50 ended 1.23% down. A tale of two halves, with a precipitous fall of almost 800 points in the third week, to recover a little by the month end. The index ended in the positive in only 10 out of the 22 trading sessions in the month.

Many reasons can be attributed for this volatility, especially with the confirmed cases of corona virus hitting a peak of close to 1 lakh cases by mid of September. By month end, the daily cases subsided below their seven-day moving average, to provide some respite.

While trials for the vaccine continue at an accelerated pace, the solution remain elusive, and vaccine is still quite a distance away from commercialization.

Of the 44 world indices, 35 of them ended in the negative territory for the month. This was a big flip considering that only 5 indices ended in the red in August. The HNX30 Index, which tracks the performance of the 30 largest stocks on the Hanoi Stock Exchange, was the best performing index with 7.14% gain, followed by the Borsa Istanbul 100 Index ending with 6.18% gain.

Indonesia’s IDX Composite was the worst performer, with a 7.03% fall, accompanied by Hang Seng at 6.82%. The average fall among all losing indices was 3.62% and Nifty 50 fared better in comparison.

While Nifty 50 performance was negative, the broader markets performed well, with Nifty Small Cap 100 index delivering a 4.19% return, followed by Nifty Midcap 100 index ending with a 1.85%  return. Among the sectoral indices, Nifty IT was the top performer with 11.28% return, followed by Nifty Pharma at 6.26%. PSU indices continue to lag the general market by a wide margin, delivering negative returns, greater than 11%.

Among Nifty50 stocks, Dr Reddys Labs delivered the best returns for the month at 21.65%, followed by HCL Technologies at 16.88% and Wipro at 15.57%. Only 17 stocks from the index gave positive returns for the month.

On a quarterly basis, JSW Steel topped the index stocks at a whopping 46.69% gain, accompanied by HCL Technologies at 45.75% and Titan at 45.20%. Among the worst performers was Bharti Airtel at -24.81%, impacted by the AGR dues case, MSCI rejig confusion and fall in subscriber base. GAIL, ONGC and IOCL were the other large losers. 16 stocks gave negative returns for the quarter ending September.

Unlike August, where FIIs invested ~Rs.15,750 crore, the month of September saw them pulling out Rs.11,410 crore, especially in the last 7 trading sessions. DII buying was flat and unable to soften the impact of FII selling.

Irrespective of this mismatch, BSE equity market capitalization rose by Rs.147,965 crore, much lesser in comparison to the Rs.637,000 crore in August or Rs.798,000 crore in July.

The Rupee witnessed marginal depreciation against the Dollar, falling from 73.25 to 73.57 during the month.

Foreign exchange reserves increased by US$590 million, rising from US$541.43 billion for the week ending 25 August to US$542.02 billion for the week ending 25 September. Fall in gold prices dented the reserves by US$1.2 billion.

Most commodities barring Palladium fell considerably, with silver losing 18.25%. Similar to other industrial metals, lower demand for crude, due to slower economic recovery, continues to impact the prices and remain range bound.

Gold continued to trend lower continuously from its all-time highs. After losing ~Rs.2000/10 gm in August, it lost a further Rs.900/10gm during the month.

World economies continue to pledge and deploy more monetary stimulus to aid the recovery as needed, as the effect of corona virus pandemic hasn’t abated yet. United States revealed a US$2.2 trillion package that aims at distributing checks to the populace. US Real Gross GDP decreased at an annual rate of 31.4% QoQ in Q2CY20.

While this wraps up the stocks and commodity market, let’s look at the domestic events that influenced the Indian economy.

  • ICRA revised its forecast for GDP contraction to 11% YoY from 9.5% YoY forecasted earlier for FY21. However, ICRA retained its earlier forecast of fall in GDP at 12.4% YoY in Q2FY21. The agency revised its projections for GDP decline to 5.4% YoY from 2.3% YoY for Q3FY21 and to 2.5% YoY from earlier projection of 1.3% YoY growth in Q4FY21 (Source: HDFC Securities).
  • CARE Ratings has pegged India’s combined fiscal deficit at 13-13.4% of GDP for FY21, assuming no further fiscal stimulus. While the Centre’s deficit is expected to touch Rs.17.8 lakh crore against the target of Rs.8 lakh crore, the states are likely to record a deficit of Rs.7.73 lakh crore over the budgeted Rs.6.35 lakh crore.
  • The latest CII Business Confidence Index moved up to 50.3 in Q2FY21, a far cry from the low of 41.0 seen in Q1FY21.
  • Non tax revenue collection in the current financial year stood at Rs.84,000 crores, with corporate tax collection at Rs.95,530 crores; Direct tax revenue stood at Rs.3.59 lakh crore.
  • According to Department for Promotion of Industry and Internal Trade, FDI equity inflows into India contracted by 60% YoY to US$6.56 bn during Q1FY21. The overseas inflows during same period last year stood at US$16.33 bn.
  • Kharif crop sowing accounted for 111.363 hectares, a 5.7% rise on a year on year comparison for April – September period.
  • As per sources, food grain production target for the crop year 2020-21 is set at 301 mn tonnes (MT), up nearly 1.5% from the previous year’s output, owing to good monsoon and sowing across a higher acreage. Rice production target fixed at 119.6 MT, with wheat output target at 108 MT.
  • Inflation continues to remain on the higher side, much above RBI’s mandate or expectations. Since December 2019, inflation has persisted above the 6% mark, with food inflation still continuing in high double-digit range. Supply chain disruptions due to lockdowns could have been the cause in the earlier part of the year but abatement is still some distance away.
  • RBI data indicates that, India’s current account balance recorded a surplus of US$19.8 billion (or 3.9% of GDP) in Q1FY21. This contrasts with deficit of US$15 billion (or 2.1% of GDP) in Q1FY20. In Q4FY20, the surplus stood at US$0.6 billion or 0.1% of GDP.
  • India’s overall exports (Merchandise and Services combined) in April-August 2020-21* are estimated to be US$182.13 billion, exhibiting a negative growth of (-)19.32% over the same period last year. Overall imports in April-August 2020-21* are estimated to be US$167.94 billion, exhibiting a negative growth of (-) 38.00% over the same period last year.
  • Imports in August were US$29.47 billion, a decline of (-) 26.04% lower in Dollar terms and (-) 22.38% in Rupee terms over imports in August 2019. Major commodity groups of import showing negative growth in August 2020 over the corresponding month of last year are:
  • Fiscal deficit during April-August of FY21 stood at 109.3% of the annual target estimated in the budget. In absolute terms, at Rs.8.7 lakh crore.
  • Output of eight core infrastructure sectors dropped by 8.5% YoY in August 2020 vs 0.6% YoY contraction in August 2019, mainly due to decline in production of steel, refinery products and cement.
  • RBI data shows that, retail credit activity covering housing, credit cards and the vehicle segment moderated in August 2020 over the previous month. Retail loans grew by Rs.16,879 crore in August 2020 while it had grown by Rs.40,853 crore in July 2020.

Heading into the second half of the fiscal year, economic scenario still remains uncertain. While health concerns due to corona virus still remain, government has issued guidelines for further unlocking, in a bid to boost economic activity. Exports, vehicle registrations, wholesale auto sales and many indicators continue to show uptick, in comparison to previous months but are still down on a year to year comparison.

Preliminary data for India’s merchandise trade shows that:

  • Merchandise exports in September 2020 were US$27.40 billion, as compared to US$26.02 billion in September 2019, a positive growth of 5.27%
  • Merchandise imports in September 2020 was US$30.31 billion, as compared to US$37.69 billion in September 2019, a decline of 19.60%
  • India was net importer in September 2020, with a trade deficit of US$2.91 billion, as compared to trade deficit of US$11.67 billion in September 2019, a substantial improvement of 75.06%
  • Value of non-petroleum and non-gems and jewellery exports in September 2020 was US$21.11 billion, as compared to US$19 billion in September 2019, a positive growth of 11.12%

Hopefully, the economic recovery will be faster than expected, with infections due to pandemic also subsidising over the next few months.

The month ahead: What does October hold for the stock markets in India?

Quoting Mark Twain, “October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”

Nothing to take forward in terms of trends, except for the positivity that, over the course of last 11 years, Nifty50 has given positive returns in 7 years. With US elections less than 45 days away and President Trump contracting the infection, volatility is bound to be high. Any disappointments from the stock market perspective might result in a substantial correction, leading into the new year. However, prudent investors would take advantage of these opportunities to build a substantial portfolio before economy kicks off into a possible high gear over the course of next 12 – 18 months.

Till then, stay healthy and stay safe.

Happy Trading & Investing!

 

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