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Fixed Income Market Update: October 2016
Fixed income market outlook:
Review of Equity markets for the month of October 2016
The equity markets closed virtually flat for the month though they rallied in the first half before correcting later in the month. Global news flows dominated as voter surveys pointed to a closer contest in the US elections than was anticipated earlier, the minutes of the September Fed meeting seemed to indicate that the Fed would likely hike soon and markets felt that higher yields in the developed markets could impact the carry trade. The flows into emerging market equities remained strong at USD 5.86 Billion for the month. However, India saw net outflows from FIIs at USD 745 million for the month. For the year however, India has received net inflows of USD 6.76 Billion out of the total of USD 16.5 Billion that EMs have received as a category (till October end).
Domestic institutional flows were mixed. While mutual funds were buyers of USD 1.2 Billion during the month, insurance companies were sellers to the tune of about USD 200 million. While the narrow indices were broadly flat, there was meaningful rally in some indices, especially in metals and oil/gas as the table below shows. Metal stocks were driven by sharp rally in metal prices over the past month/quarter. As an example, prices of Aluminum were up 3.6%/ 5.5% over the past month/ 3 months. These numbers for zinc were 3.6%/ 9.8%. The LMEX (London Metal Exchange of 6 primary commodities) is up 3.1% in the past quarter. This rally has been partly driven by rebound in demand from China, where the GDP has grown at 6.7% for each of the first three quarters of 2016. In energy stocks, both oil marketing companies and gas distribution companies did well during the month. The OMCs were driven by expectations of better GRMs and volumes. Oil marketing companies have seen upgrades from sell side analysts in the past few weeks. On the weaker side, fast moving consumer goods companies did not do as well as volume growth remains weak yet, though there are expectations of a pickup in the second half.
In other news, the Rupee was broadly flat (down by 0.2%) while the Dollar Index appreciated by over 3% during the month. Oil prices were down 1.6% during the month after rallying 4% in September, as doubts emerged if OPEC really could limit production as they had earlier said they would do.
PERFORMANCE AS ON OCTOBER 28, 2016*
1 Month (%)
3 Months (%)
6 Months (%)
1 Year (%)
S&P BSE Sensex
S&P BSE 100
S&P BSE 200
S&P BSE 500
S&P BSE MID CAP
S&P BSE SMALL CAP
S&P BSE AUTO
S&P BSE Bankex
S&P BSE CD
S&P BSE CG
S&P BSE FMCG
S&P BSE HC
S&P BSE METAL
S&P BSE Oil & Gas
S&P BSE PSU
S&P BSE Teck
*Performance for less than one year are absolute returns.
Source: MFI Explorer
In macroeconomic news, the CPI for September came in at 4.3%, a one year low, led by lower vegetable and pulse prices. Core inflation also came in lower at 5.1% in September (August, 5.3%). RBI cut repo rates by 25 bps at their October meeting. IIP, which is volatile, was (-) 0.7% for August, though it was better than the July number (-2.5%). Merchandise exports, which have been contracting for a while now, grew 4.6% in September. However, we need to see if it holds up given the slowdown in the global economy. Incidentally, according to data gathered at 17 Indian ports by Maersk, overseas container shipments grew by 11% in the first half of the year.
A number of companies have declared the Q2 results so far. Automobiles, capital goods, NBFCs, metals and oil and gas have done well. Pharmaceuticals, banks and telecom overall had a negative growth. As mentioned above, consumer staples’ numbers were impacted by poor underlying volumes.
The economic activity remains mixed. The broad sense from businessmen is that rural demand should show some signs of pickup in H2 led by good rains, and a good kharif crop. However, items showing strong demand are civil aviation (strong passenger numbers), consumer credit and two-wheelers.
One of the initiatives the government has been focusing on is on ease of doing business. In the latest WEF global competitiveness ranking, India has shown an improvement of 16 spots to 39th rank. If a GST which is relatively easy to administer is implemented, it can lead to further improvement in the rank. We should get the broad contours of the final shape of the GST over the next few weeks.
Among other things, the markets will watch for the results of the US elections, the US Fed, the earnings, and the commentary from corporates for Q3, especially on signals on consumer demand.
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