The markets remained resilient through November 2019 with the Nifty rising 2.2% and the NSE Midcap rising 5.7%. The NSE Bank was one of the key sectoral indices, rising >8% this month.

The concurrent indicators for the economy remained weak. Industrial growth was sluggish and the Index of Industrial Production (IIP) delivered a negative print for October 2019. Exports also remained sluggish with a 1.1% contraction for October 2019. The worrying sign is that bank credit growth remains stubbornly low at 8.1 % y/y. Compounded with the weak growth for NBFCs and the bond market; this remains an impediment to growth. This weakness is reflected in the GDP growth for 2QFY20, which came in at 4.5%.

Some positives are, however, coming through. As we discussed last month, interest rates are continuing to head southwards, aided by both RBI rate cuts and transmission. The monsoons have been strong and this should aid a recovery in rural sentiment. The reflation of food prices would also help in improving cash flows to the farming and rural segments. Additionally, you may also read the views from HDFC Bank in The Print (https://theprint.in/economy/hdfc-bank-sees-signs-of-economy-reviving-in-rural-and-semi-urba n-a reas/329435/)*

The policy environment is improving with some significant events this month.

We are slowing our deployment as the post-September 2019 rally has stretched valuations for the portfolio companies. On the other hand, the continued weakness in the economy does not give us confidence to go down the quality curve. We will watch the market till the next Budget in end-January 2020 for further cues.

(* The information contained in this link has been obtained from public domain and is for informational purposes only. Alchemy does not make any representations or warranty, express or implied, that such information is accurate or complete.)

Source — Alchemy Group Research