Equity markets in September 2019
● Stock markets in India rebounded strong, post the announcement of reduced tax rates for Indian companies. The Nifty was up sharply, making up for the losses over the past few months.
● The Midcaps also rebounded but still continue to trail the large caps for the current year.
● The S&P 500 (US Markets) also finished on a positive note, as the S&P 500 in USD terms was up 2.6%. The Rupee finished stronger for the month
Debt markets in September 2019
● Median returns of the Top 10 liquid funds averaged 5.6%, down from the past year as interest rates have been coming off.
● Government bond yield inched up in August, as the reduced tax rates led to concerns on fiscal deficit and the possibility of the government increasing its overall borrowing program.
Factors affecting markets
1. The Finance Minister announced a path break reduction in the tax rates for corporates in India. Post this change, companies will pay a reduced rate of 25.2% income tax compared with the earlier 34.4% (check this figure). This change should encourage domestic companies to start investing and trigger the much awaited Cap-ex cycle.
2. Moreover, with the fears of the global trade war, many companies globally are looking to diversify their manufacturing base across multiple countries. The reduced tax rates make it more attractive to make India destination for these global firms to set up manufacturing base in India. India does need to compete with the likes of Vietnam, Indonesia, Thailand, etc.
3. Despite the tax cuts, overall economy growth continues to be weak. Expert opinion suggests that it may take more announcements from the government to trigger consumption growth. Consumer confidence is low and we need to watch out for demand to pick up.
4. The NBFC crisis is continuing and is spreading. Default by Altico during the month indicates the continuing pressure faced by NBFCs, especially those with exposure to real estate and infrastructure projects. It is important to note that the banks are stepping into this space to ensure continuing credit availability for genuine borrowers.
5. Investors will keenly watch out for demand recovery in the current festive season. Many consumer facing sectors have seen weak demand over the past few months and with a good monsoon behind us, one should expect consumer demand recover in the coming month. Any growing economy do face weak periods, commonly referred to as ‘cyclical weakness’ and normally comes out of the weak patch in a few months.
While the markets rebounded sharply in September thanks to the corporate tax rate cuts, the economy is yet to follow suit. Investors will keenly watch out for demand recovery in the current festive season. Many consumer facing sectors have seen weak demand over the past few months and with a good monsoon behind us, one should expect consumer demand recover in the coming month.