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16 Jul 2016 by Research and Ranking
June 2016 Newsletter
Despite concerns over Brexit (Britain's exit from the European Union) and Dr. Raghuram Rajan's exit as the RBI governor, Indian markets closed on a positive note in June. Benchmark Nifty50 gave monthly returns of 1.56%. But due to the unexpected geo-political development (Brexit), the index did touch an intraday low of 7927 - down almost 2.9% from previous month-closing of 8160. By the end of month, index made a smart recovery from the lows and eventually closed at 8288 - a jump of more than 4.5% from the lows.

The up move was not limited to indices of large companies alone and was spread across market caps. In fact, the mid- and small-caps gave better aggregate returns (as depicted by monthly return figures of Nifty Next50 and Nifty 500) than large caps:


It is worth noting that after falling below the psychological barrier of 7000 in February, Nifty (and markets) staged a good recovery in last few months and is already up more than 15% from the lows of 2016.

Result of referendum in Britain (people of Britain deciding in favor of leaving the European Union) shocked the world. The global markets too reacted negatively and this was the time when Indian markets touched their monthly lows. But negativity didn’t last for long as investors realized that impact of Brexit might not be felt in a hurry. Though it is still early to make intelligent predictions about the direct impact of Brexit on the Indian economy, one needs to be cautious about possible indirect impacts (as current global economy is highly complex and interconnected). You can read our detailed views on Brexit.

Indian investors community was stumped by the news of another ‘exit’ - when the current RBI Governor Dr. Raghuram Rajan announced that he will not be available for a 2nd term. Though markets didn’t react negatively to the news, market participants seemed worried about the fate of existing pro-economy initiatives of Mr. Rajan like PSU banks cleanup, liquidity management, etc. Government is yet to announce the name of Dr. Rajan’s replacement but as per general consensus, the front runners are Arvind Subramanian (current Chief Economic Advisor to the finance ministry), Arundhati Bhattacharya (Chairman of State Bank of India), Urjit Patel (Deputy Governor of the RBI) and Rakesh Mohan (executive director at IMF).

June also saw a no-show by RBI on the Policy Review front. RBI kept the key rates unchanged. So the repo and reverse repo rate remained at 6.5% and 6% respectively. The cash reserve ratio (CRR) also remained unchanged at 4%. According to Meteorological department, India is expected to get better than average monsoon in 2016 (after 2 consecutive years of poor monsoons). But RBI has still gone on record and acknowledged that any inadequacy in rainfalls in later weeks can increase inflation. Unexpected recovery in crude oil prices can also fuel inflation.

Such global and domestic events are an ongoing phenomenon and we will continue to see more of them in future. What is important is to focus on the companies one has invested in and gauge the impact of internal or external issues on the fundamentals of these companies. And therefore we continuously track the news flows, policy developments corporate actions amongst others; and the impact of the same on business and financials across stocks, both held in our portfolio as well as in the R&R Investment universe.

We continue to remain bullish on the Indian economy in the long run as we believe a lot of investments and economic/policy decisions taken in last 2 years have set the stage for the next Bull Run. This view combined with the fact that Indian markets are currently available at attractive market cap / GDP levels; it becomes clear that for long term investors, there is nothing much to worry about. Great companies have a habit of delivering, despite uncertainties in global and local markets.

As far as our portfolio is concerned, we are well diversified across sectors and themes. There is no change in our holdings in the month of June and sector allocation remains the same.

R&R 1

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