31-08-2020
Weekly market review by Hemant Kanawala Head - Equity, Kotak Mahindra Life Insurance Co. Ltd.
Insurance AlertssWeekly market review by Hemant Kanawala Head - Equity, Kotak Mahindra Life Insurance Co. Ltd.
Broader market outperformance continues
Broader markets continued their outperformance over the last week with Nifty Midcap 150 index returning 3.3% vs Nifty 50’s 1.2%. We expect the outperformance of midcaps over largecaps to continue over the near term. Foreign flows continued to pour in unabated with an inflow of ~USD 560 mn over the last week even as domestic flows continue to be under strain, facing an outflow of ~USD 200 mn. Market valuations are much closer to their long term averages due to the recent market rally from the Mar’20 bottom.
On macroeconomic front, the government received the dividend of INR 571 bn from the RBI this year versus INR 1.76 tn last year. The transfer belied expectation that the dividend payment would be larger thereby allowing Centre some room to spend. Among other data, RBI released its annual report for FY20 where it quoted the provisional data for FY20 household financial savings. As per preliminary estimates, net financial savings of the household increased to 7.6% of Gross National Disposable Income compared to 6.4% in FY19 as financial liabilities of the households fell as access finance tightened. We expect this trend to get further fillip in FY21 as consumption takes a hit, precautionary savings rise and access to finance reduces. The trend of flow of retail funds into markets may persist at least through FY21.
Financial Saving of the Household Sector
| Item | 2011-12 | 2012-13 | 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 | 2018-19 | 2019-20# |
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| A. Gross financial saving | 10.4 | 10.5 | 10.4 | 9.9 | 10.7 | 10.4 | 11.9 | 10.4 | 10.5 |
| of which: | |||||||||
| 1. Currency | 1.2 | 1.1 | 0.9 | 1 | 1.4 | -2.1 | 2.8 | 1.5 | 1.4 |
| 2. Deposits | 6 | 6 | 5.8 | 4.8 | 4.6 | 6.3 | 3.1 | 4.1 | 3.6 |
| 3. Shares and Debentures | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | 1.1 | 1 | 0.4 | 0.4 |
| 4. Claims on Government | -0.2 | -0.1 | 0.2 | 0 | 0.5 | 0.7 | 0.9 | 1 | 0 |
| 5. Insurance Funds | 2.2 | 1.8 | 1.8 | 2.4 | 1.9 | 2.3 | 2 | 1.3 | 1.7 |
| 6. Provident and Pension funds | 1.1 | 1.5 | 1.5 | 1.5 | 2.1 | 2.1 | 2.1 | 2.1 | 2.1 |
| B. Financial Liabilities | 3.2 | 3.2 | 3.1 | 3 | 2.7 | 3 | 4.3 | 4 | 2.9 |
| C. Net Financial Saving (A-B) | 7.2 | 7.2 | 7.2 | 6.9 | 7.9 | 7.3 | 7.6 | 6.4 | 7.6 |
In the coming week, the Central Statistical Organization is expected to release estimates for Q1FY21 GDP. The GDP growth is expected to come in at -18% YoY.
Media and banks lead returns while real estate and telecom drag
Media (5.3%) continued on its outperformance to lead sectoral chart, followed by banks (5.1%) on the back of better than estimated Q1FY21 results. Telecom (2.9%) and Real Estate (-0.7%) brought in rear end of sector performance, both due to stress in their fundamentals reflecting in the recent quarterly performance.
Exhibit 1: Media, Banks lead; telcom and PSU banks drag
Exhibit 2: Nifty P/B ratio is inching closer to its long term average
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