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The last month of FY17 saw some stability returning in most global markets. Consequently, domestic markets also saw improved performance in March'17. Fixed income markets witnessed softening of yields while equity markets saw some positive momentum. The appreciation in Indian Rupee and positive FII flows in both equity and in debt markets for the month could be attributed as the main reasons for the positive performance of the Indian markets, despite the interest rate hike by the US Fed around the mid of March'17. The historic Goods and Services Tax (GST) regime came a step closer to meet its July 1st target of rollout with the Loksabha approving four supplementary legislations in the month gone by. All macro-economic indicators including CPI inflation have painted a healthy picture in the month gone by. All eyes may now shift to RBI's view on interest rates in the month of April 2017.

Market Performance*

March'17 saw Indian Equity markets closing in green, with the domestic equity markets represented by the benchmarks Nifty 50 and S&P BSE Sensex gaining by 3.31% and 3.05% respectively. The recovery in crude oil & commodity prices, and the dovish tone of US Fed fueled inflows in domestic markets were the major drivers boosting market sentiments. The comprehensive tax reform of GST getting a nod of the lower house also propelled the sentiments.

Inflation^^

Retail inflation represented by CPI (Consumer Price Index) for February'17 increased to 3.65% after hitting a record low of 3.16% in Jan'17. Firmer food and fuel prices drove India's overall inflation higher in February, well below RBI's target of 5% for FY17. However, with RBI now focusing more on core CPI, any possibility of a near term cut in interest rate by the Reserve Bank of India is low. India's wholesale inflation firming up to a 39-month high of 6.55% in Feb'17 from 5.25% in Jan'17, highest in 39 months. The key reasons for the high WPI print were rise in fuel inflation and lower base in the previous year's index (February 2016 at -0.85%).

IIP^

Data released by the Central Statistics Office showed the index of industrial production (IIP) rose 2.7% in Jan'17 after contracting by 0.4% in Dec'16, negating the impact of demonetization. While mining output grew 5.3%, manufacturing rose 2.3% and electricity generation gained 3.9%. On use based classification, capital goods production grew by 10.7% while consumer goods production contracted by 1%.

Fiscal deficit **

India's fiscal deficit in the April-February period of the current fiscal touched Rs. 6.06 lakh crore or 113.4% of Budget estimates for 2016-17 - as against 107.1% of Budget in the same period of last year. The deficit, or the gap between expenditure and revenue for the entire current fiscal, has been pegged at Rs. 5.34 lakh crore, as compared to the deficit of Rs. 5.35 lakh crore in the last fiscal as per revised estimates of 2015-16. Tax revenue during the period in question yielded Rs. 8.85 lakh crore, or 81.3% of the estimates, while total receipts, from revenue and non-debt capital, during the fiscal's first eleven months, were 11.47 lakh crore, or 77.5% of the estimates for the current year. The deficit figure tends to exceed the budgeted target nearer to the end of fiscal year, but gets adjusted against hefty tax inflows in March, when the fiscal year ends.

Triggers:

  • Though global markets are showing signs of stability, volatility may continue to prevail in emerging economies on back of political uncertainty in Europe and pace of US rate hikes. Market participants may continue to be driven by global sentiments. USD/INR is likely to be continue to be driven by global news and the market participants are expected to closely monitor the movement of the crude oil prices amongst other commodities across the globe.
  • With the GST regime set to be implemented by July 1st 2017, the focus shifts to Monetary Policy announcement by RBI in April'17. Though the market participants do not expect a change in interest rates, liquidity management steps and the tone of the RBI governor may be keenly watched. Monsoons may continue to play a key factor in monetary policy as good monsoons may keep inflation under check and open room for further action.
  • Market participants may likely track the 4th quarter corporate earnings season
  • The volatility in oil & other commodity prices has given some shift in market sentiments and the direction of oil price is crucial factor determining stability of global markets. The extension of production cuts by OPEC post June may be key driver for oil prices
  • Measures such as implementation of budget announcements, further reduction in bank lending rates, implementation of GST, policy reforms in infrastructure and core sectors hold the key for growth in India

Source:
* Bloomberg
^ mospi.nic.in
^^ ICRA
** Economic Times

Disclaimer:
The information used towards formulating the outlook has been obtained from sources published by third parties. While such publications are believed to be reliable, however, neither the AMC, its officers, the trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the accuracy of such information. CRMF, its sponsors, its trustees, CRAMC, its employees, officer, directors, etc. assume no financial liability whatsoever to the user of this document. Mutual Fund Investments are subject to market risk. Investors are requested to read the Scheme related documents carefully before investing.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

During the month of March'17, Indian equity indices recorded impressive gains for the third month in a row supported by strong macros, domestic currency appreciation and robust FPI inflows. IIP, PMI and other macro-economic indicators improved and inflation, though higher than the previous reading, was under RBI's target. Globally, there was growing ambiguity regarding monetary policy in Japan and Europe. The Eurozone is also facing political uncertainty with the clearance of referendum of Brexit added to the global anxiety and anti-European sentiment in particular. Despite the US Fed increasing the interest rates, the dovish tone of the US Fed chairperson took the market participants by surprise. US Fed's gradual approach towards increasing the interest rates in future augurs well for emerging markets and India in particular, which is well poised for a massive leap when the global uncertainty fades.

Market Performance**

As in the previous few months, the Indian Equity markets rose in the month of March'17 as well. On net basis India's bellwether indices viz. S&P BSE Sensex & Nifty 50 gained by 3.05% and 3.31% % respectively while S&P BSE Mid- cap index & S&P BSE Small-cap index saw an increase of 4.02% & 5.43% respectively. On the sector front, most of the sectoral indices were in green. S&P BSE Consumer Durables was the top gainer, rising by 10.73% followed by S&P BSE Consumer Goods and S&P BSE Realty, which rose by 7.26% and 7.02%, respectively. However, S&P Metal, HealthCare and IT fell by 0.75%, 0.47% and 0.10% respectively.

Growth'

The seasonally adjusted Nikkei India Manufacturing Purchasing Managers' Index (PMI) remained unchanged for the month of February'16 as compared to January'16 at 51.10, pointed to a second consecutive monthly improvement in business conditions across the sector. Meanwhile, the Nikkei services PMI fell from 54.30 in January'16 which had marked a 19-month high, to 51.40 in February'16. Despite the fall, the indicator rests in expansionary territory as the output in four of the six broad sectors surveyed showed healthy increase. The pace in which new orders rose was at the weakest since November'15.

IIP^

The index of industrial production for the month of Jan'17 witnessed a growth rate of 2.7% due to better performance by the capital goods segment, a barometer of investment activity. In all, 9 out of the 22 industry groups in the manufacturing sector have shown positive growth during January 2017 on annual basis. Mining, manufacturing and electricity sectors posted growth rates of 5.3%, 2.3% and 3.9% respectively. The capital goods segment grew by 10.7%, basic goods category expanded by 5.3% while intermediate goods category contracted by 2.3% in Jan'17.

FPI Inflows**

Mar'17 was yet another month which witnessed positive FPI (Foreign Portfolio Investor) flows. Due to strong domestic variables, FPIs invested ~ Rs. 31,326 Crs into the Indian equities in the month gone by. Not only by the FPIs, the domestic investors also invested in the equity markets to the tune of ~ Rs. 2,371 Crs.

INR strengthened on back of FII inflows

The Indian Rupee continues to outperform its Asian peers over the past three months and has touched 17-months high against the US Dollar. Rupee's performance has been an outcome of improvement in macroeconomic factors like decline in current account deficit (CAD), higher levels of foreign reserves and lower inflation. A part of the appreciation-level was also added by PM Narendra Modi's BJP government win in State Elections 2017 and US Federal Reserve 25 basis point rate hike which weakened dollar index. The rupee closed at 64.85 as on 31st March'17 compared to 66.69 as on 28th February'17.

Outlook

Equity markets rallied towards the month end on the back of strong FII flows and strengthening currency. The near term market movements are likely to be driven by 4Q corporate results as well the global trend.

While global risk appetite is high, expectations of a recovery in corporate earnings will be the near-term trigger for Indian markets

The increased political stability and more likely transmission of rate in near future has already rerated the price multiple in Indian equity markets; which might sustain given the outlook of higher earnings growth in FY18 -19.

Even though the current recovery is slow, going forward markets are likely to remain volatile in the short term and recovery expected to gather momentum on a longer term owing to inherent structural strengths of the economy, bottoming of corporate profitability and prospects of domestic flows. Such opportunities can be utilized to increase allocation toward equity assets. Seeing an opportunity, investors may adopt a staggered approach to investing in equities in order to even out market volatility.

Source:
^ MOSPI, ICRA
` Markit
** ICRA MFI Explorer, Data as on 31st March, 2016.
* Mutual fund net inflow data is as of 29th March, 2016

Disclaimer: The information used towards formulating the outlook has been obtained from sources published by third parties. While such publications are believed to be reliable, however, neither the AMC, its officers, the trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the accuracy of such information. CRMF, its sponsors, its trustees, CRAMC, its employees, officer, directors, etc assume no financial liability whatsoever to the user of this document. Mutual Fund Investments are subject to market risk. Investors are requested to read the Scheme related documents carefully before investing.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

During the month of Mar'17, the fixed income markets saw reduction in 10 Year G-sec yields on the back of continuous flow of funds from the foreign investors over the ambiguity over the various reforms by the U.S. government. Yields of Indian 10 Yr G-Sec plummeted 19 bps during the month of Mar'17 ending at 6.68% as compared to 6.87% on 28th Feb'17. Despite increase in inflation, improved domestic macros such as improving IIP and PMI along with positive FII flows led to the appreciation of Rupee during the month of Mar'17 (INR/USD 64.85 on 31st Mar'17 from INR/USD 66.69 on 28th Feb'17). On the global front, the US Federal Reserve raised its interest rates by 25 bps as widely expected by the markets due to the rising confidence that the economy is poised for robust growth; however, the dovish tone surprised the investors. Conditions in the European region continue to remain politically uncertain with the clearance of referendum of Brexit fueling the anti-European sentiment. The strong macro-economic factors as well as the greater political stability have strengthened the faith of the foreign players in the Indian market which has led to the infusion of funds to the tune of ~Rs. 25,617 crs by FPIs during the month of Mar'17. Domestic participants continued to show conviction in the Indian Fixed income markets as Mutual Funds invested ~Rs. 34,895 crs in the month.

Government borrowing in the H1FY2018 increased*^

With the expectation of pick up in spending, the government has planned to borrow Rs. 3.72 lac crs from the market in the first half of FY2018. The borrowing for the first half will represent 64% of the full year borrowing target. The gross market borrowing budgeted in the Union Budget 2018 pegged at Rs. 5.8 lac crs and the net borrowing at Rs. 4.25 lac crs. As highlighted by the government, the G-secs which are going to be auctioned will have higher maturity as it is focusing on the open market borrowing to extend the maturity profile.

Balance of Payments Q3 FY17^

Current Account Deficit (CAD) widened to USD 7.9 bn in Q3FY2016-17 in comparison to USD 7.1 bn during the same period previous year and USD 3.4 bn (0.6% of GDP) in the preceding quarter. CAD widened despite a slightly lower trade deficit YoY, primarily on account of a decline in net invisibles receipts. Net services receipts moderated YoY, which can be attributed to the fall in earnings from software, financial services, and charges for intellectual property rights. However, CAD during the period Apr-Dec'17 narrowed to 0.7% of GDP from 1.4% of GDP in the corresponding period of the previous fiscal due to the narrowing of trade deficit during the same period.

Retail as well as the Wholesale Inflation increases#

The Consumer Price Index (CPI) based inflation accelerated to 3.65% during Feb'17 from 3.17% in the previous month, majorly contributed by food prices. Consumer Food Price Index rose at a faster pace to 2.01% in Feb'17 from 0.61% in Jan'17. For the month of Feb'17, the WPI based inflation rose at a faster pace to 6.55% in comparison with 5.25% in the previous month with food prices increasing by 2.69% as against 0.56% contraction in Jan'17. Increase in oil prices was also a major contributor to WPI increase.

Outlook:

Post the hike in Mar'17, market participants expect the Federal Reserve to announce another two hikes depending on the inflation and employment data. The dovish tone of US Fed may help continue the flow to EMs and India in particular due to relatively better macro conditions.

With Government of India undertaking major reforms such as GST and FDI deregulation and RBI being stringent in implementing its policies, the Indian subcontinent continues to remain a favourable investment destination and with the strengthening macroeconomic indicators foreign investors have preferred the Indian fixed income market.

With the Feb'17 RBI policy signalling a “neutral” stance on back of global geo-political uncertainty, domestic strong macroeconomic factor might compel the RBI to relook at the interest rate in the country. However, inflation undershooting RBI's target and a relatively stronger INR are likely to keep RBI in a dovish mode in near term.

Going ahead inflation trajectory may remain uncertain on back of volatility in international crude prices and exchange rate, on the back of global financial market developments, uncertainty on monsoon and the impact of implementation of 7th CPC. While bond yields have drifted downwards in March on back of FII flows and currency appreciation, the market may remain rangebound in the short term on developing global and local events and neutral RBI policy stance. However, over longer term, strong macro-economic factors are likely to push yields down. In a scenario of global volatility creating local uncertainty in the near to medium term provides another opportunity to long term investors to make fresh allocations, in a phased manner, with a 1 – 3 years' timeframe.

Source:
#MOSPI
^RBI
*MFI Explorer
@Bloomberg

Disclaimer: The information used towards formulating the outlook has been obtained from sources published by third parties. While such publications are believed to be reliable, however, neither the AMC, its officers, the trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the accuracy of such information. CRMF, its sponsors, its trustees, CRAMC, its employees, officer, directors, etc. assume no financial liability whatsoever to the user of this document. Mutual Fund Investments are subject to market risk. Investors are requested to read the Scheme related documents carefully before investing.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.