India market commentary for March

India is on the right path.

Indian Prime Minister Narendra Modi, President of the Bharatiya Janata Party Amit Shah and newly elected Chief Minister Biplap Deb celebrate an electoral victory in Tripura. EPA/STR

With its victory in the regional elections in north-east India, the party of Prime Minister Narendra Modi further extends its dominant position. Chrys Kamber, Fund Manager Padma India Fund, analyses the latest developments in India.

The ruling party, Bharatiya Janata Party (BJP) swept the assembly elections in three northeastern states, where it won the majority in Tripura and will govern as a coalition in Nagaland and Meghalaya. In Tripura the BJP ended the 25-year rule of the Communist Party of India (Marxist). This victory has further strengthened the position of Mr. Modi’s re-election in 2019. At present, the BJP governs alone o ras a coalition in 21 out of 29 states.

Turning point for Indian equities

The recent trade protectionist measures taken by the USA spurred a worldwide trade-war fear and rattled the global equity markets. In the last fifteen days, none of the major equity indices, from Dow Jones to Nikkei were able to remain on positive territory. While Indian equities underperformed their global peers on a year to date basis, they outperformed in the last week of March supported by the inflows from both foreign and domestic investors.

Surprising industrial production

In India, key indicators are moving in the right direction. The CPI has lowered to 4.4% in February from 5.1% a month earlier due to the moderation in vegetable prices. A normal monsoon this year (as per the experts forecast) will keep inflation below 5%, making a case for the RBI to pause on rate hikes. The industrial production surprised with a 7.5% rise in January. Crucially, capital goods production and infrastructure and construction segments posted a strong double-digit growth. Companies with businesses related to the manufacturing and infrastructure sectors are seeing demand and order flow revival, and plan to expand capacity. The capex cycle has just begun in India after a long stagnant period. Moreover, the high tractor sales growth clearly indicates a recovery in the rural economy, thanks to the good monsoon last year and government spending on roads and healthcare.

Financial sector an outperformer

In March, the NSE Nifty Index and the MSCI India Index posted a loss of 3.62% and 3.6% respectively (all in USD terms). The small and mid-cap performance were at par with the large caps this month. Padma India Fund was in the negative territory with a loss of 3.87% during the same period. The Financial sector outperformed while the information technology and healthcare sectors were the major laggards of the portfolio. Bajaj Finance and Sterlite Technologies were respectively the positive and negative performance contributor this month. Sterlite Technologies is a fully integrated fiber optic manufacturer in India. They work with the government to bring broadband internet to villages and in developing transmission lines across India. They have increased capacity by 36% and have revenue visibility for the next two years supported by the increasing demand for data in the domestic market. The fund will continue to hold this company.