The global markets bellwether, US markets had second successive weak month with negative returns.
Indian markets on the contrary had a positive month, led mainly by large cap indices that outperformed the mid and small cap indices. Nifty gained 3.5% while Nifty Midcap 100 and Nifty Smallcap 100 indices were broadly flat with 0.5% gain and 0.1% loss, respectively. Among large sectors in market, Financials, IT and Metals outperformed Nifty, while Auto, FMCG, Pharma and Energy underperformed Nifty.
Globally, the news flow shifted to tracking the elections in USA as well as the possibility of second phase of Covid infections in Europe and USA. While vaccine development efforts by many pharma companies give hope, the visibility remains elusive as no one has yet filed the product for approval with drug regulators.
The Indian economy continues to normalise with a significant data showing a YoY growth/flattish trends. A majority of high frequency indicators like demand for electricity/petrol/diesel, railway freight, GST collection, production of automobile, cement, steel are in the green. The festive season that started in mid-October has seen encouraging response across products as consumer sentiments are improving. We believe November too should bode well for many aspirational products. The services, especially travel and hospitality remains in a challenging spot as people are still staying safe and not venturing out much. We continue to monitor the trends there too.
The early set of results for Q2FY21 have been quite encouraging especially with corporate commentary on optimism around recovery led by festive season. In a positive surprise, many of the banks expressed an optimistic outlook on asset quality. A combination of restructuring of large accounts, government scheme for SMEs and behaviour on secured retail portfolios have led to the confidence. Unsecured retail lending does have some challenges for some lenders but absolute quantum is quite manageable at the aggregate level.
On policy front, Government has expressed its intent to support the economy with fiscal stimulus-II. While the actual timing, mode and quantum of the stimulus-II is not known, we believe festive season seems an appropriate time for the same. RBI too has expressed its intent to support economy by lower rates and adequate liquidity to boost economic activity.