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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: January 2018

  • During the month, rates went up across all asset classes with sharp rise across short term CPs and CDs. Increase in minimum LCR requirements effective from 1st Jan 2018, rise in global bond yields led by US treasuries, concerns on fiscal slippage and further rise in CPI led inflation were the main reasons.
  • The ten year gilt benchmark closed the month at 7.43%, 8 bps higher from previous month. The ten year AAA Corporate bond benchmark closed at 8.11%, 7 bps higher than previous month. The five year AAA corporate bond benchmark closed at 7.88%, 8 bps higher as compared to previous month. Ten year SDL spreads widened to be in a range of of 55-65 bps to the ten year gilt benchmark.
  • 1 year CD rates closed at 7.45%, 70 bps higher than previous month. 1 year T bill yield closed 14 bps higher at 6.55%. 3 month CD rates closed at 7.17% (77 bps higher) and 3 month T bill yields rose 25 bps to 6.40%.
  • Brent Crude oil prices rose further during the month to USD 68.83 per barrel. INR appreciated and closed the month at 63.58 as compared to 63.87 the previous month. For the month of January, FIIs were net buyers in the debt market to the tune of Rs 9419 cr. India’s Dec trade deficit printed at USD 14.88 bn, higher than previous month.
  • The ten year benchmark US treasury yield rose by 30 bps to close the month at 2.70. Analysts attribute this rise to being part of a global bond sell-off, some part of which is linked to the realization that the combination of the Federal Reserve and ECB is slowly shifting from quantitative easing to neutral in the near term and actual combined balance sheet reduction later this year. Prospects of improved wage inflation outlook and generally better employment data and economic data has also led to the rise in yields.
  • December WPI data release came at 3.58% as compared to 3.93% in previous month. CPI for December came at 5.21% compared to 4.88% in previous month.
  • Nov Industrial production (IIP) growth came at 8.4% compared to 2% for previous month.
  • For the month banks lent on an average Rs 40658 Cr at various RBI liquidity facilities put together reflecting neutral to surplus liquidity conditions.
  • The Centre’s fiscal deficit rose to Rs 6.21 lakh crore or 113.6 per cent of the Budget target between April and December 2017.
  • During the month government also surprised markets by announcing that extra borrowing will be only Rs 20000 crore as against Rs 50000 crore announced earlier. RBI also rejected some bids in the long end gilts probably on behalf of government on unease with the sharp rise in yields

Fixed income market outlook:

  • Banking system liquidity to remain in neutral to deficit zone on divestment related outflows and lower maturities
  • Short term Money market rates are expected to remain stable with an upward bias as liquidity tightens further.
  • Post Budget with fiscal targets and borrowing figures announcement we feel the current yields have priced in the negatives arising out of same. However sentiment remains weak and market needs a strong trigger to come out of bearish zone.

Equity Market Round Up: Jan 2018

The CPI for December came in higher at 5.2% while the IIP for November came in at 8.4% (October, 2.2%). Though the IIP number partly gained due to the base effect, electricity production growth was strong at 3.9%. The sharp surge in electricity production is corroborated by the stress on coal supplies and is a symptom of likely on the ground revival in the economy.

The results declared so far for Q3, FY 18 have been broadly positive and in line with expectations. On the conference calls, the management of companies have been bullish on demand recovery esp. in rural areas. The capital goods companies also have been giving positive commentary.

The government announced the bank recapitalization program of PSU banks amounting to Rs. 88,000 crores. In contrast to market expectations that bigger and better managed banks will get higher capital, the government has allocated regulatory capital to revive banks out of Prompt Corrective Action (PCA) and boost tier-1 capital.

In terms of sectors, IT and banks did well. IT rally was led by the sense that the global economic recovery and the US tax cuts could lead to higher IT spends along with the relatively lower valuations these companies had vs the market. The financial sector stocks rallied led by the private sector banks. The telecom sector stocks did badly as another round of competitive price cuts was announced by a new entrant to the sector.

FIIs were net investors in January with net purchases of USD 2.03 Billion after redemptions of about 750 million in December.

Equity Market Outlook

As stated in our previous communication, we are cautiously optimistic on the market outlook in 2018. While the Union Budget 2018 and some global factors have played their parts in recent marketcorrections, we feel it is a good opportunity for long term investors of equity mutual funds. At this point, equity markets are fairly valued and hence provide a good wealth creation opportunity for patient long term investors. Any near-term market volatility due to global or local events should be additional opportunities to allocate more investments to equities. Equity Mutual funds should remain the instrument of choice for long term wealth creation with low expense ratios andprofessionally managed funds with consistent track record over market cycles.

31-Jan-18

 

Index

1 Month (%)

3 Months (%)

6 Months (%)

1 Year (%)

Broad Markets

 

 

 

 

 

Nifty 50

11028

4.72

6.70

9.43

28.81

S&P BSE Sensex

35965

5.60

8.29

10.61

30.04

S&P BSE 100

11419

3.53

5.96

9.45

29.30

S&P BSE 200

4812

2.85

5.97

9.83

30.02

S&P BSE 500

15347

2.30

5.95

10.43

31.62

S&P BSE MID CAP

17364

-2.57

4.68

12.83

35.05

S&P BSE SMALL CAP

18717

-2.67

6.34

16.30 44.69

Sectoral Performance

 

 

 

 

 

S&P BSE AUTO

25945

-3.01 2.09 6.06 18.96

S&P BSE Bankex

30986

7.38 9.55 9.16 38.88

S&P BSE CD

22477

-0.94 21.72 36.50

78.02

S&P BSE CG

20364

6.43 10.53 13.30 37.75

S&P BSE FMCG

10711

0.15 4.36 6.12 25.02

S&P BSE HC

14559

-1.62 1.95 2.56 -1.61

S&P BSE METAL

15427

3.27 4.73 24.15 32.17

S&P BSE Oil & Gas

16368

0.52 -1.11 15.35 27.50

S&P BSE PSU

9117

-0.62 -3.02 4.95 9.35

S&P BSE Teck

6832

6.61 14.34 15.85 27.98

 

Data Item

1 Month

1 year

 

(%)

(%)

MSCI EM Index (USD)

8.30%

37.98%

MSCI EM Index (Local)

6.73%

31.19%

Indian Rupee

-0.45%

-6.30%

Dollar Index (DXY)

-3.25%

-10.43%

Crude Oil- Brent

3.26%

23.97%

CRB Index

2.57%

2.54%

Gold

3.25%

11.10%

Copper

-1.78%

18.81%

Iron Ore

1.17%

-14.18%

Cotton (Cotlook A Index)

-2.23%

4.91%

 

Indicators

Dec-17

Jan-18

FII net flows (Rs. Crs)

-5883.00

13781.00

Exports (USD Billions)

26.20

27.03

Imports (USD Billions)

40.03

41.91

CPI

4.88

5.20

IIP

2.20

8.40