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Indian markets, rebounded strongly in the month of March, going up by more than 10%. The positive movement was fueled by growth oriented budget for FY2016-17. FIIs turned bullish on the Indian markets in a major fashion with net inflows of Rs21,143cr in the month of March after being net sellers since November 2015. Additionally, the markets gained in the latter half of the month on expectation of a rate cut by the Reserve Bank of India (RBI) at its monetary policy review. Backed by a windfall gain on crude the government could deliver a pragmatic budget with focus on productive expenditure, emphasis on infrastructure and rural development rather than spending on subsidies. Favorable trade balance helped narrowing down the current account deficit to 1.3% of GDP for 3QFY16 compared to 1.5% in 3QFY15. FDI inflows have also picked up substantially in 9MFY16 to $54bn compared to $45bn for entire FY15, indicating foreign investors’ preference for India over other markets as an investment destination. At 7.3% India has the highest GDP growth rate amongst the emerging markets and is placed very attractively as an investment destination for foreign investors. With the Indian government’s move to reduce rates on small savings instruments, the overall interest rates in the economy are likely to come down, which will give a fillip to corporate earnings. The earnings growth of Sensex has taken a hit in the last two years as few companies with less than 30% weightage (mainly from the metals and PSU space) in the index saw sharp declines in their profitability, while the balance 70% of the companies continued to deliver decent results. Further, during the current year the weightage of the underperforming companies has gone down to 20% and their earnings also seem to have bottomed out. The above reason makes us believe that with nominal GDP growth rate of ~12%, corporate earnings should grow by 15-16%. Inflows into the domestic mutual funds have also been at record high levels. Lower interest rates offered on bank deposits and small saving scheme make equities more attractive and we see inflows into the Indian equity markets to be strong going ahead. In line with our expectations the RBI has reduced the repo rate by 25bp to 6.5% in its first bi-monthly policy review of this fiscal and addressed the liquidity shortage witnessed by the bank. We believe that RBI has further room for rate cuts in the quarters to come. Lower interest rates will come as a relief for both consumers and corporates. Interest rate sensitive sectors like auto, banks, housing finance companies and select players in the infrastructures and real-estate space could see improvement in volumes. Our top-picks in these sectors are LIC Housing Finance, Dewan Housing Finance, Mahindra Lifespace, and IL&FS Transportation Networks. Further we remain positive on consumption based stocks like Blue Star, Radico Khaitan, Siyaram Silk Mills, etc.Download Full Report