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Fund Manager Commentary

Read the latest market analysis and commentary on the Equity & Debt market from our Investment Desk as they share their views on market trends, market outlook and how to capitalize on investment opportunities.

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Fixed Income Market Update: November 2017

  • During the month, while money market rates remained benign, gilt and corporate bond yields rose on the back of rise in crude oil prices, global bond yields, OMO sales and waning rate cut expectations.
  • The ten year gilt benchmark closed the month at 7.05%, 20 bps higher from previous month. The ten year AAA Corporate bond benchmark closed at 7.83%, 15 bps higher than previous month. The five year AAA corporate bond benchmark closed at 7.44%, 13 bps higher as compared to previous month. Ten yr SDL spreads contracted to be in a range of 60 bps to the ten year gilt benchmark.
  • 1 year CD rates closed at 6.62%, 5 bps higher than previous month. 1 year T bill yield closed 5 bps higher at 6.27%. 3 month CD rates closed at 6.21% and 3 month T bill yields rose marginally to 6.12%.
  • Brent Crude oil prices rose further during the month to USD 62.78 per barrel on improving demand forecast and extension of supply cuts by OPEC. INR appreciated and closed the month at 64.46 as compared to 64.74 the previous month. For the month of November, FIIs turned net sellers in the debt market to the tune of Rs 1,144 cr. India’s October trade deficit printed at USD 14 bn as compared to USD 8.98 bn in Sept 2017.
  • The ten year benchmark US treasury yield rose by 3 bps to 2.40 as economic data in the US continued to signal growth recovery.
  • October WPI data release came at 3.59% as compared to 2.6% in previous month. CPI for October came at 3.58% compared to 3.28% in previous month.
  • Sept Industrial production (IIP) growth came at 3.8% compared to 4.5% for previous month. Core Industries registered a growth of 4.66% in October 2017.
  • Banking system liquidity remained in surplus mode though it steadily declined. RBI conducted Rs. 10,000 cr worth of OMOs of dated g-secs, cancelling a subsequent Rs 10000 cr announced one. Banks lent on an average Rs 73,825 Cr at various RBI liquidity facilities put together.
  • The Centre’s fiscal deficit rose to Rs 5.25 lakh crore or 96 per cent of the Budget target between April and October 2017.
  • During the month Credit Rating agency Moody’s upgraded India’s sovereign rating from Baa3 to Baa2. The upgrade comes after 13 years. Later during the month on a review S&P kept its rating on India unchanged at BBB- with stable outlook.

Fixed income market outlook:

  • Banking system expected liquidity to remain in surplus zone, however the quantum of surplus is expected to be lower than previous month and in a range of Rs 20,000 cr to 30,000 cr.
  • Short term Money market rates are expected to remain stable with an upward bias as liquidity tightens further.
  • The ten year benchmark may trade in a range of 6.90% to 7.15% in the near term due to supply and fiscal concerns. However as absolute yields look attractive intermittent buying may emerge. The Dec US FOMC meeting will be watched as Fed is expected to hike key rates by 25 bps.

Equity Markets Round Up

Moody''s upgraded India''s sovereign rating to Baa2 with a stable outlook citing expectations that progress on economic and institutional reforms will enhance growth potential and government finances and result in a decline of the government’s debt burden.

During the month, Defensive sectors did better while sectors like metals (due to relatively weak data from China), Cement (Supreme court’s ban on pet coke impacted a number of companies) and capital goods (due to deferment of order books and slow execution) did not do well

In Q2 results, Nifty earnings grew in double digits after six quarters. The consumer staples companies saw improvement in volumes as restocking happened. Consumer companies pointed to a revival in rural growth.

Metals and automotive companies also showed good results for the quarter. Most banks reported sharp decline in slippages and an apparent bottoming out of asset quality.

While the overall commodity index was flat for the year, Brent crude is up nearly 26% over the past year. Metals are up strongly.

The CPI for the month of October came in at 3.58%.

After shrinking in September, trade deficit again widened in October to USD 14 Billion.

Equity Market Outlook

We believe that the macroeconomic trends for India look stable, but unlikely to improve in the short term. Higher oil prices, low, but rising inflation, and possible slippage on current account and fiscal deficit will be watched. The markets will watch for corporate earnings for Q3 to see if the improvement in Q2 will be sustained. The equity markets may consolidate in the near term. Tactical allocation of wealth to equities mutual fund schemes and equity related hybrid schemes would be advisable.

Data Item

% Growth

1 Month

1 year

MSCI EM Index (USD)

0.15

29.90

MSCI EM Index (Local)

-0.87

24.66

Indian Rupee

0.44

5.74

Dollar Index (DXY)

-1.59

-8.33

Crude Oil- Brent

3.58

25.96

CRB Index

0.42

2.01

Gold

0.28

8.68

Copper

-1.13

16.09

Iron Ore

16.42

-5.48

Data as on 30th Nov 2017

Source: Bloomberg

 

Indicators

Nov-17

Oct-17

FII net flows (Rs. Crs)

19,629.20

3,054.97

Mutual Fund net flows (Rs. Crs)

10,668.68

9,067.05

Exports (USD Billion)

23.09

28.61

Imports (USD Billion)

37.12

37.60

CPI

3.58

3.30

IIP

3.80

4.30

Data as on 30th Nov 2017

Source: Bloomberg

 

30-Nov-17

 

Index

1 Month (%)

3 Months (%)

6 Months (%)

1 Year (%)

Broad Markets

 

 

 

 

 

Nifty 50

10227

-1.05

3.11

6.25

24.34

S&P BSE Sensex

33149

-0.19

4.47

6.39

24.37

S&P BSE 100

10705

-0.66

3.78

7.95

26.25

S&P BSE 200

4527

-0.30

4.45

8.93

27.24

S&P BSE 500

14494

0.06

5.31

10.15

29.46

S&P BSE MID CAP

16917

1.99

8.87

16.75

35.35

S&P BSE SMALL CAP

18229

3.57

13.99

22.14

47.85

Sectoral Performance

 

 

 

 

 

S&P BSE AUTO

25205

-0.82 6.40 5.04 25.12

S&P BSE Bankex

28631

1.23 4.34 8.44 34.32

S&P BSE CD

21461

16.22 21.24 40.44

90.28

S&P BSE CG

18455

0.17 6.49 5.08 31.41

S&P BSE FMCG

10321

0.56 1.45 2.48 27.88

S&P BSE HC

13990

-2.04 6.40 3.50 -11.08

S&P BSE METAL

13902

-5.62 4.65 21.84 30.34

S&P BSE Oil & Gas

15928

-3.77 4.95 12.09 33.13

S&P BSE PSU

9183

-2.32 6.22 5.87 16.54

S&P BSE Teck

6081

1.77 6.51 5.78 12.37

Source:MFI Explorer