Moody's GDP Growth Forecast, Slump in Equity Mutual Fund Inflows, and Top Cues in Focus Today

Tue, 18 Feb Pre-Open

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India share markets witnessed selling pressure during closing hours yesterday and ended on a negative note.

At the closing bell yesterday, the BSE Sensex stood lower by 202 points (down 0.5%) and the NSE Nifty stood down by 67 points (down 0.6%).

The BSE Mid Cap index ended the day down 0.9%, while the BSE Small Cap index stood down by 1%.

Stocks in the oil & gas sector and power sector witnessed huge selling pressure, while consumer durable stocks were trading in the green.

Speaking of Indian share markets, we've been telling you about the rebound in smallcap stocks in 2020 for quite some time now.

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Since the start of 2020, smallcaps have beaten largecaps by a wide margin.

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Equity Mutual Fund Inflows Witness a Sharp Decline

Investors poured nearly Rs 120 billion into equity oriented mutual funds in the three months ended December 2019, a sharp slump of 50% from the preceding quarter.

All categories of equity funds, including large-cap, mid-cap, small-cap and dividend yield funds saw a drop in flows compared to the preceding quarter.

Total flows in equity mutual funds stood at Rs 118.4 billion for the December quarter as against Rs 238.7 billion in the September quarter.

During the April-June quarter, inflows in such schemes stood at Rs 175 billion.

Meanwhile, the asset base of equity funds rose 6% to Rs 7.7 lakh crore for the quarter ended December.

Reportedly, over 30% of the net equity flows have been directed toward the large-cap category, as this segment has been the most resilient over the past year and delivered good returns.

However, inflows in large-cap funds plunged by 42% to Rs 35 billion for the quarter under review, from Rs 60 billion seen in July-September.

Mid-cap funds saw infusion of Rs 26.9 billion in the quarter under review, from Rs 37.4 billion in the preceding three months.

The flows in the small-cap category halved to Rs 13.6 billion, from Rs 30.4 billion in the September quarter.

Speaking of the mutual fund industry, note that the Indian mutual fund industry is a high growth sector.

In fact, the growth rate over the last five years has been even higher. The chart below shows the trend in mutual fund AUMs since FY14.

Mutual Fund AUM Tripled in Just 5 years

Over the last five years, mutual fund AUMs have nearly tripled, growing at 23.5% CAGR.

Recently, NSE-backed Computer Age Management Services (CAMS) filed a draft red herring prospectus with the market regulator. CAMS is the largest registrar and transfer agent (RTA) for mutual funds in India.

Being the largest registrar and transfer agent for mutual funds, CAMS is a direct beneficiary of the twin megatrends of financialisation and digitalisation.

Ankit is closely tracking this IPO and will be sharing his views at his premium newsletter Equitymaster Insider (requires subscription).

He's also closely watching the IPO trend in 2020 and is going to pick all the profitable IPOs for his readers at Equitymaster Insider. In one of his recent articles, he has explained why keeping a tab on the IPO market is vital to your overall investing goals. You can read it here: What I Learnt from IPOs in 2019 (requires subscription).

Indian Exports Fall for Sixth Straight Month in January

India's exports dropped 1.7% to US$26 billion in January, the sixth straight month of contraction, on account of a significant fall in shipments of petroleum, plastic, carpet, gems and jewellery, and leather products.

According to the government data released, imports also fell for the eighth consecutive months, down 0.8% to US$41.1 billion in January, widening the trade deficit to a seven-month high of US$15.2 billion.

Gold imports shrunk by about 9% to US$1.6 billion during the month under review.

Last time, it was in June 2019 when the trade deficit aggregated at US$15.3 billion.

Of the 30 key sectors, as many as 18 segments showed negative growth in exports during the month.

Shipments of petroleum products, plastic, carpet, gems and jewellery, and leather products contracted by 7.4%, 10.6%, 5.2%, 6.9%, and 7.6% respectively, in January.

The country's outbound shipments have remained subdued so far this year. It may have a bearing on the overall economic growth, which is pegged at 5% for the current financial year.

Industrial output declined by 0.3% in December 2019 due to poor performance mainly by manufacturing.

In January, while crude oil imports grew 15.3% to US$ 13 billion, non-oil imports fell by 6.7% to US$28.2 billion.

Cumulatively, during the April 2019-January 2020 period, exports were down 1.9% to US$265.3 billion, while imports contracted by 8.1% to US$398.5 billion.

Trade deficit during the period narrowed to US$133.3 billion as against US$163.3 billion in April-January 2018-19.

Meanwhile, an RBI release showed that services export for December 2019 stood at about US$20 billion while imports were at US$12.6 billion.

How these numbers pan out in the coming months remains to be seen. Meanwhile, we will keep you updated on all the news from this space.

Moody's Cuts 2020 GDP Growth Forecast

Moody's Investors Service slashed its 2020 growth projection for India to 5.4% from 6.6% forecast earlier. The forecast is lowered amid growing concerns over the economic fallout of the novel coronavirus outbreak.

The agency expects a shallower recovery in Asia's third-largest economy given that global growth will likely take a hit following the virus outbreak in China.

It stated that improvements in the latest high frequency indicators such as PMI data suggest that the economy may have stabilized. While the economy may well begin to recover in the current quarter, the agency expects any recovery to be slower than it had previously expected. Accordingly, it has revised its India's growth forecasts to 5.4% for 2020 and 5.8% for 2021, down from the previous projections of 6.6% and 6.7%, respectively.

Moody's also reduced its global growth projection, saying that the coronavirus outbreak has diminished optimism about prospects of an incipient stabilization of global growth this year.

In China's Hubei province, the epicenter of the outbreak, about 1,933 new cases and 100 deaths were reported on 16 February, the lowest daily death count since 11 February.

Death toll in mailand China touched 1,770 as of the end of Sunday, with total confirmed cases at 70,548.

The rating agency said with the virus continuing to spread, it is still too early to make a final assessment of the impact on China and the global economy.

It has revised global GDP growth forecast down, and now expects G-20 economies to collectively grow 2.4% in 2020, a softer rate than last year, followed by a pickup to 2.8% in 2021.

For India, Moody's said, a key to stronger economic momentum would be the revival of domestic demand, both rural and urban. It also stated that the resumption of credit growth in the economy is equally important.

We will keep you updated on all the news from this space. Stay tuned.

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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