SIP Insure - Prudential ICICI Asset Management

The Market
O v e r v i e w
Global Economy
News flows from developed economies was mixed. Growth indicators
held up well in the US but disappointed in Europe and Japan. Bank
of Japan and ECB (European Central Bank) continued with monetary
easing. The monthly non-farm payroll number in US disappointed
but growth indicators remained healthy. The members of the Federal
Open Market Committee (FOMC) appeared more optimistic about the
prospects for economic growth and jobs in America than at a previous
meeting held in January. The British economy returned to recession
as the economy contracted for the second consecutive quarter. In
Japan, the central bank delivered more easing than expected. In
Europe, while the monetary easing continued, the debate on the
extent of austerity measures intensified. In China, the economy grew
at an annual pace of 8.1% in the first quarter marking a deceleration
from 8.9% growth rate recorded in the previous quarter (Source:
Reuters).
Domestic Fundamentals
After falling for two consecutive months, HSBC India Manufacturing
PMI (Purchasing Managers Index) India edged up a mere 0.2pt to 54.9
in April (Source: HSBC). Industrial Production growth accelerated to
4.1% year-on-year (YoY) in February compared with growth of 1.1%
YoY in January (revised downward from 6.8% earlier), and 2.5% YoY
in December 2011 (Source: MOSPI).
The headline inflation rate (Wholesale Price Index-WPI) remained
steady at 6.89%YoY in March 2012 compared to 6.95% YoY in
February 2012. While non-food manufactured inflation moderated in
Mar-12 due to high base effect last year, food inflation accelerated,
offsetting some of the benefit of lower non-food manufactured
inflation (Source: Office of Economic Adviser).
Equity Market Outlook
buying interest and net bought $154mn in Apr with the YTD net
selling number now at $4.3bn. Amongst the DIIs, Mutual Funds
continued to be net sellers to the tune of $132mn while the buying
interest was seen from Insurance companies, who bought in close
to $286mn (Source: SEBI).
Quarterly earnings season has been a mixed bag so far. Private sector
banks, Consumer companies have fared better, while performance
has been extremely varied for global sectors. Consumer Staples,
Consumer Discretionary and Health Care out-performed. IT services
underperformed as one of the major bell weather stock missed
guidance. Telecom stocks were adversely impacted by the TRAI’s
2G spectrum pricing recommendations.
Indian equities recorded yet another month of weak performance after
having started the year with an impressive rally. With the overhang on
GAAR (General Anti-Avoidance Rules) related tax issues continuing all
of the month, regulatory surprises continuing to catch the industry on
the wrong foot and Europe concerns re-emerging, the market did not
bounce back. So much so that the much-awaited RBI rate cut which
in fact surprised on the upside, did little to change sentiments.
Outlook:
We believe that markets will still continue to be volatile and will be
driven by flows, global oil prices or domestic triggers like government
execution of the budget blueprint, pass through of oil prices and
monsoons etc. Hence the only clear direction is that of volatility.
While there are challenges abound, positive cues continue to provide
optimism. Factors like moderating inflation and a downward interest
rate bias from here on. Therefore, in our view the Indian economy in
2012 can continue to deliver on growth, albeit we are able to leverage
on our positives and demonstrate affirmative action and execution.
In the light of liquidity issues and the slowing growth in the economy,
the RBI finally kicked off its rate reversal cycle. The cut to the tune
of 50bps in the repo rate was in fact higher than expected and RBI
issued statements tempering expectations of a further rate cut in the
near future (Source: RBI).
Rupee continued with its downward spiral for the second consecutive
month & ended another 4% lower at ~52.7. (Source: Bloomberg)
Standard & Poor’s (S&P) also revised its economic outlook for India to
negative from stable. The reason cited for the downgrade is the large
fiscal deficit, lower expectations of economic reforms and slowing
down of Gross Domestic Product (GDP) growth. Later, Finance
Minister Pranab Mukherjee termed S&P’s move as a timely warning
and assured that economic reforms would be done to check fiscal
deficit at 5.1% of the GDP for 2012-13, as projected in the Budget
(Source: Reuters).
Market Sentiments
The market will require the government to take the fiscal consolidation
roadmap ahead with possible increase in oil/ petrol prices without
which the fiscal deficit scenario will have no resolution. Until then we
continue to look for triggers like those mentioned above for changing
our neutral weight to being positive on equities and recommending
an increased allocation to equity for investors.
Product Recommendations:
Our view on volatility still stands strong. We continue to believe that
lump sum investments into funds like ICICI Prudential Dynamic Plan
and ICICI Prudential Equity and Derivatives Fund - Volatility Advantage
Plan are positioned to benefit investors through capitalizing on
inherent volatility of the Indian equity markets. Staggered investments
through Systematic Investment Plan (SIP) in ICICI Prudential Discovery
Fund and ICICI Prudential Focused Bluechip Equity Fund will add to
investors long term return potential. Finally let asset allocation be the
most important guiding principle for investors.
For the first time this year, FIIs (Foreign Institutional Investors)
turned into net sellers and pared their India investments by $115mn.
However, their year till date (YTD) buying still remains an impressive
$8.7bn. Domestic Institutional Investors on the other hand, showed
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