Weekly market review by Hemant Kanawala, Head - Equity, Kotak Mahindra Life Insurance Co. Ltd.

Border tensions; valuations drag markets

News of fresh tensions at the India-China border, rising valuations across a good section of the market coupled with receding foreign institutional flows resulted a strong pressure for the market over the last week, with Nifty returning (-2.2%) . The broader market had a steeper correction with Nifty Midcap 150 returning (-3.2%).  On the flows side, after a prolonged trend of continuing positive flows, foreign institutions pulled out ~USD 229 mn over the last week. Pressure on domestic flows continued with domestic institutions withdrawing USD 73 mn as well.

On the macro-economic front, the performance of the Southwest (SW) Monsoon significantly improved during August, recording a surplus of 27% above its long period average. This helped to raise total rainfall surplus to 9.2% of LPA as on September 2 vs. a surplus of a mere 0.24% end of July. The early start to the sowing season and abundant rainfall have ensured that Kharif sowing has already covered 102% of normal Kharif acreage as on September 4. Abundant rainfall and payouts under Garib Kalyan Package have ensured comfortable cashflow position for rural India this year. This has helped to keep demand strong despite headwinds related to higher cases in rural India. For instance, data on PM Kisan installments show that during Apr-July, 105 mn farmers got PM Kisan Installments compared to just 66 mn during same time last year.

Exhibit 1:  Government has frontloaded PM Kisan spending

IT stands out in a correcting market while banks suffer the most

With overall pressure in the market, defensive sectors like IT (1.0%), Pharma (-0.9%) and FMCG (-1.5%) outperformed the market while high beta sectors like Bank (-6.7%), Real Estate (-6.5%) and Metals (-5.7%) bore the maximum brunt.

Exhibit 2:  Media, metals lead; telcom and PSU banks drag

Exhibit 3: Nifty P/B ratio is inching closer to its long term average