Invest Online

Fund Manager Commentary

Decrease text size Restore default text size Increase text size

Need Help?

Talk to Us at 1800 425 5600

Have a Consultant Contact You

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.

Know more about:

Debt Markets

Fixed Income Market Update: May 2017

  • During the month we saw a mixed movement in the various fixed income asset classes. While short term CD and T bill rates rose, Gilt and corporate bond yields fell across the curve. Fall in inflation as measured by CPI and WPI, fall in global bond yields, announcement of new ten yr benchmark, FII purchases in debt and expectations of GST being anti-inflationary were the main reasons.
  • The GST Council fixed rates on almost all of the goods and services along with the cess to be levied on luxury/demerit goods. According to government estimates, the GST rates should lower inflation by 2 percentage points (pp) after their implementation.
  • During the month government introduced a new ten year benchmark gilt at 6.79% in primary auction. Subsequently as yields came down the benchmark closed the month at 6.66%. The old ten year benchmark gilt closed at 6.79%, 15 bps lower from previous month. The ten year AAA Corporate bond benchmark closed at 7.83%, 4 bps lower than previous month. The five year AAA corporate bond benchmark closed at 7.58%, 12 bps lower as compared to previous month. Currently SDL spreads are trading around 90 bps to the new gilt benchmark.
  • 1 year CD rates closed at 6.72%, 10 bps higher than previous month. 1 year T bill yield increased by 3 bps to close at 6.44%. 3 months CD rates closed at 6.35%. 3 months T bill yields rose to 6.28%, 11 bps higher than previous month.
  • Brent Crude oil prices remained stable at USD 50.08 barrel.
  • INR marginally depreciated and closed the month around 64.50 as compared to 64.15 the previous month. Trade deficit in April was at US$13.2 bn, higher than US$10.4 bn in March For the month of May, FIIs were net buyers in the debt market to the tune of Rs 26056 crore approx.
  • The ten year benchmark US treasury yield ended 9 bps lower at 2.20%.
  • April WPI data release came at 3.85% as compared to 5.29% in previous month. Base Year has been changed to 2011-2012 from 2004-05 and hence the Index has undergone change for WPI and IIP. CPI for April came at 2.99% compared to 3.89% in previous month.
  • The GDP release for fourth quarter of FY 2017 (Jan to March) showed a sharp slowdown as Real GDP printed at 6.1% as compared to 7% in previous quarter and GVA growth came in at 5.6% as compared to 6.7% in previous quarter. For the full year FY 2017 GDP growth has come in at 7.1%. The GDP release in the fourth quarter reflects the lagged impact of demonetization and cash shortage.
  • March Industrial production (IIP) growth came at 2.7%.
  • Banking system liquidity remained well in surplus mode. RBI conducted long dated (300 day plus) T bill auctions as well as short dated CMBs under MSS. Banking system averaged a surplus of Rs 3.25 lakh crore at various RBI liquidity facilities put together.

Fixed income market outlook: 

  • At its next Monetary Policy Review scheduled to be released on June 7th, we expect RBI to keep key rates on hold. RBI may take a more balanced view on inflation given recent data releases.
  • We expect banking system liquidity to remain in surplus zone although the quantum of surplus is expected to reduce in a range of Rs 2.5 to 3 lakh crore.
  • The ten year benchmark g sec yield is expected to trade in a range of 6.60-6.75% during the month. The five year AAA Corporate bond benchmark is expected to trade in a range of 7.40%-7.75%.
  • Short term Money market rates are expected to remain stable on back of low CD issuance and surplus banking system liquidity.

Equity Markets

Review of Equity markets for the month of May

The NSE Nifty index was up 3.4% during the month of May. However, unlike the preceding few months, the mid cap and small cap indices were negative for the month, giving up some of their outperformance over the large cap indices. Globally, the Emerging markets continued to do better than the Developed markets. The MSCI EM (USD) index was up 2.8% during the month, while the Developed market index was up 1.8%. Strong performance in EM space was widespread, with a number of countries outperforming India. Fund flows into EMs have remained strong, with nearly USD 9.3 Billion coming into EM equity funds during the month. With this, CYTD 2017 offshore inflows into EM equity have gone up to USD 32.1 Billion. India received inflows of about USD 1.5 Billion from FIIs during the month, taking the CYTD total to about USD 7.9 Billion. In line with past trends, mutual funds were net buyers (of USD 1.4 Billion), while insurance companies were sellers during the month.

The performance of various sectoral indices is listed below. The FMCG and the auto indices did well during the month, while the weak performance of the healthcare index stood out. The FMCG and auto indices did well as markets expect that an improving rural economy as a result of increased government focus and good rains in the last year (except in parts of South India) would be positive for them. Further, the Met department has forecast normal rains for the current year. The auto sales remained decent in May with passenger vehicle sales growing 9% yoy (after a strong 15% yoy growth in April). Secondly, as the GST rates were announced, for many of the articles in the FMCG sector the rates were slightly lower than the current rates. Likewise, for the auto sector too, the rates were along expected lines with no major negative surprises. The pharmaceuticals companies were impacted by a weak pricing environment for generics as a result of heightened competition (esp. in the US). The IT sector was steady in the month supported by valuations which are at a discount to the market. 

The Rupee was virtually flat (down 0.4%) during the month, while crude oil prices were down about 2.7%. Prices of precious commodities were flat during the month.


 PERFORMANCE AS ON May 31, 2017* 



1 Month (%)

3 Months (%)

6 Months (%)

1 Year (%)

Broad Markets






Nifty 50






S&P BSE Sensex






S&P BSE 100






S&P BSE 200






S&P BSE 500
















22.31 35.34

Sectoral Performance








6.06 12.45 19.94 24.78

S&P BSE Bankex


4.83 13.05 24.54 32.00



-0.48 11.77 36.54




-1.51 14.76 25.29 21.65



7.37 14.84 25.22 25.62



-9.69 -11.84 -13.79 -11.03



-0.49 -5.43 5.45 41.47

S&P BSE Oil & Gas


-1.44 5.27 19.08 52.83



-3.80 2.51 10.12 38.68

S&P BSE Teck


4.78 -0.95 5.53 -8.29

* Performance for less than one year are absolute returns.

Source: MFI Explorer

In macroeconomic news, the Q4, FY 17 GDP surprised negatively, growing at 6.1% yoy, while consensus expectations were for a growth rate of 7.1%. The core GVA (Gross Value Added) slowed from 7.6% in H1 FY 17 to 4.9% in H2. Government spending was strong in Q4, growing 32% yoy. Excluding government spending, the GDP growth was 4% yoy for Q4, FY 17. Real estate and construction were particularly hit. According to Nomura economists however, the economy in the current quarter is recovering led by recovery in rural consumption, external tailwinds and better infrastructure sector output growth and GDP growth is expected to come back in the second half of the year.

The CPI for April came in at 3% (March 3.9%). This was helped both by a stronger currency impacting commodity prices and steady food prices (with pulses being particularly weak). The WPI was at 3.9% in April (March 5.3%) led by food and fuel prices.

The trade deficit for the month of April was USD 13.25 Billion, much higher than about USD 10 Billion which has been the average level in the recent past. The exports were lower 15% mom which is usual as March numbers are usually strong, but they were up 20% yoy. Imports however, were up 49% yoy as non-oil, non-gold imports continued to grow.

The earnings for the Q4, FY17 were good for the metals and financials sector as a result of the low base.

Going forward, the markets will watch for the GST roll out which is scheduled for July 1. Anecdotally, however, registration for the smaller traders and those in the upcountry areas are yet work in progress. There could be near term disruption in the supply chain as retailers may cut down on inventory going into July as there could be some potential concerns on input credit. As such, there may be slowdown in production in June which should reverse as the supply chain gets replenished post July.

Decrease text size Restore default text size Increase text size

Need Help?

Talk to Us at 1800 425 5600

Have a Consultant Contact You