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Negative sentiments persisted in the domestic markets as well as around the globe in the last month of FY18. The month saw S&P BSE Sensex and Nifty 50 below the 36,000 and 11,000 marks respectively because of the ongoing pain in the finance and banking sector which was felt and witnessed throughout the month by Indian equity markets. Globally, the announcement of hefty tariffs on imports of steel and aluminium products by the U.S. President impacted the market indices. The U.S. Federal Reserve (Fed) increased interest rates by 25 bps to 1.75%, as per market expectations. On the fixed income side market participants were bearish because of lack of new triggers and also on account of tight liquidity conditions due to financial year end. Fall in rupee and hike in U.S. Treasury yields due to U.S. Federal Reserve chairman's indication on rate hike also weighed on market sentiment. However there was respite at end of month, with the yields softening on back of reduction in H1FY19 borrowing by the government. Further the government reduced FY2019 borrowing by Rs.50,000cr. This added to positive market segment and 10Y yield closed at 7.40% at March end.

Market Performance*

The Indian equity markets ended the month on a negative note, due to the negative sentiments of the market participants and trade policy changes in the global markets. Markets were seen in the negative territory as Nifty 50 and S&P BSE Sensex down 3.61% (M-o-M) and 3.56% (M-o-M) respectively. On the other hand, the mid and small cap were down by 3.62% (M-o-M) and 6.25% (M-o-M) respectively.

IIP^

India's Index of Industrial Production (IIP) rose to 7.5% in Jan'18 as against 7.1% in Dec'17, riding on the back of robust manufacturing sector output. 16 of the 23 industry groups in the manufacturing sector showed growth. The classification showed that production of primary goods rose 5.8%, while capital goods output increased 14.6%. Manufacturing sector index climbed to 8.7% in Jan'18 as compared with 8.5% in Dec'17, led by an improved production of consumer durables and continued double-digit growth of consumer non-durables as well as capital goods.

Inflation^^

The Consumer Price Index (CPI) based inflation for the month of Feb'18 came in at 4.44% as compared to 5.07% in Jan'18. India's retail inflation came in lower but remained above the 4% medium-term target of the Reserve Bank of India (RBI) for the fourth consecutive month but was well within the band of 2%-6%. The inflation numbers majorly eased on the back of lower food prices with food inflation for the month been recorded at 3.26% down from 4.7% as of the previous month.

Trade Deficit##

Trade deficit widened to $12.0 bn in Feb'18 as against $16.29 bn in Jan'18, as export growth gathered pace, and imports moderated. India's exports rose 4.5% to $25.8 bn in Feb'18, while imports grew 10.4% to $37.8 bn in Feb'18. Growth was led by increasing outbound shipments of petroleum products, and organic, inorganic chemicals. Exports of gems and jewellery, that is one of the major contributors, declined 5.14%. On the import front, shipments of crude oil, coal, pearls and precious stones inflated the bill. Gold imports declined 16.9% to $2.8 bn for the second straight month with a decline in price by 1.58%.

Triggers

  • The outcome of the RBI's Monetary Policy Committee (MPC) that would be meeting on 4 and 5 Apr'18 for the first bi-monthly monetary policy for FY19 would be closely watched by the market participants.
  • The movement of crude oil prices and the 4th quarter corporate earnings are expected to impact the markets going ahead.
  • Going forward monsoon is also expected to play an important role, as it impacts food prices which could have a direct impact on inflation and upcoming data points which would be monitored by market participants.
  • Market would take cues from the U.S. markets and forthcoming rate hikes by the U.S. Federal Reserve.
  • Geopolitical tensions and volatile in commodity prices globally and the any further announcement of trade policy barriers would be carefully observed by the market participants.

Source:
* Bloomberg
^ mospi.nic.in
^^ ICRA & RBI
## Ministry of commerce

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.

The Indian Equity markets had a volatile month of March'18. On a whole, the micros in the form of earnings are showing signs of improvement; however, the macros pose some near term challenge in terms of rising yields, rising crude oil prices and increased barriers to international trade which have created headwinds for Indian equity indices. US Fed raised interest rate by 25bps and maintained a dovish stance on further tightening the lending rate this year. Trade war by the world's largest economy is causing an escalation of fear among investors in an already weak market. US - China trade war with US imposing a tariff on $50B worth of Chinese goods would be a new threat to the free trade bull market in the era of globalisation having impact on all countries including India.

Market Performance**

The Indian bellwether indices viz. S&P BSE Sensex & Nifty 50 closed in red for the month of Mar'18, down by 3.56% & 3.61% respectively. Similar impact was also felt in the mid and small cap space. S&P BSE Mid- cap index & S&P BSE Small-cap index were down by 3.62% & 6.25% respectively. While most major sectors were seen trading in the negative territory, S&P BSE Metal and S&P BSE Realty were the most beaten sectors during the month down by 12.20% and 9.66% respectively. Except for S&P BSE Consumer Durables which remained in green and gave a positive return of 5.07%.

IIP^

India's Index of Industrial Production (IIP) continued to maintain the recovery momentum, by growing at 7.5% in Jan'18 from 7.1% in Dec'17. This is the third month that output data has grown by more than 7%, indicating that the economic activity is gaining as the effects of demonetisation and the goods and services tax (GST) abate. As per sectoral classification, Manufacturing and Electricity were the sectors which supported growth, this could be an indication that the industries could be bouncing back from glitches of GST.

FPI Outflows**

Reversing the trend seen in the past couple of months, Foreign institutional investors were net buyers of Indian equities in Mar'18, even as stock markets globally were quite volatile. The net FPI inflow for the month was Rs. 8367.82 Crs (as on 22nd Mar'18). DIIs were net buyers of equities in Mar'18 with the net purchases being Rs. 3110.60 Crs (as on 20th Mar'18).

Outlook

  • Though the markets were seen largely range bound, the offshoots of recovery are visible in some of the sectors; which is a positive sign for Indian markets. Markets have principally reacted to the global cues of hardening of interest rates but the same is likely to change beginning Apr'18 wherein the first set of earnings will be released.
  • The annual GDP estimated in the latest CSO data show that overall growth will moderate to 6.6% vis-à-vis 7.1% in FY18 due to a slowdown in growth during the first half of the year as the economy transitioned to a new tax regime alongside rising import costs. However, Q2 FY18 real GDP growth at 7.2% brings much respite while affirming market narrative of reinvigoration in economic activity. Furthermore, revival in manufacturing is what helps build in the overall narrative for the Indian growth story.
  • The upcoming state elections would be one of the key concerns to watch out for. Monsoons would also remain the key factor for a persistent improvement in rural and urban demand across sectors for the development of the economy.
  • We could witness the short-term challenges but the long-term outlook that is presented by the structural changes that have taken place in India should help to improve our economy as a whole. However, geopolitical tensions and volatile oil prices globally could also impact the markets for short to medium term. With expectations of volatility entrenched around markets, we see merit in increase allocations towards equities in a staggered manner.

Source:
^ MOSPI, ICRA
` Markit
* RBI
** ICRA MFI Explorer

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.

After remaining volatile till Feb'18, Indian fixed income markets staged a strong comeback during the month of Mar'18. The Indian 10-year benchmark softened on a surprise announcement of the reduction in borrowing in FY2019 and reduction in 1H borrowing for FY2019. Further the government reduced overall borrowing in the longer segment and shifted the same to shorter tenors. The government announced to issue bonds worth Rs. 2.88 trillion in 1H FY2019 accounting to only 47.56% of the government's budgeted fiscal-year borrowing much lower than previous years. During the month of Mar'18, due to the impact of tight systemic liquidity coupled with rise in crude oil prices, the overall appetite of the market participants for purchasing fresh bonds lowered. The Indian 10yr G-sec moderated by a 33bps to 7.40% towards the end of the month as compared to 7.73% on 28th Feb'18 because of a culmination of domestic as well as global events. Globally, markets remained volatile during the last month, prompted by uncertainty regarding the pace of normalisation of US monetary policy in the initial part of the month and concerns surrounding global trade. However, U.S. Federal Reserve raised interest rates by 25 basis points while reiterating its plan to raise rates gradually which impacted other markets especially emerging economies. European Central Bank chose to wait and watch the further development on the interest rates in the euro zone before any action on interest rates is taken. Certain commodities like Brent crude traded higher by $4.49 per barrel during the month while other commodities like copper tumbled during the month. Crude prices increased on expectations that the OPEC as well as Russia could extend the production cut into next year. Brent Crude closed at $70.27 per barrel as on 29th Mar'18 as compared to $65.78 per barrel as on 28th Feb'18. Indian Rupee remained unchanged as compared to last month and closed at Rs.65.18/$ on 29th Mar'18.

Government gross borrowing in the H1FY2019 reduced*^:

The government announced to borrow Rs. 2.88 trillion in the H1FY2019, which is 47.56% of the budgeted gross borrowing and is lower than the average of 60-65% in last five years. During the same period last fiscal, the gross borrowing was Rs. 3.72 trillion. In the FY2019, the G-Sec buyback would be reduced by Rs. 250 billion. In addition, the government will issue around 8.3% of securities in the shorter end of the curve i.e. in the 1-4 year bucket in FY19. It will issue 25% of bonds in 5-9 year bucket, 29% in 10-14 year bucket and 23% in the 20-year bucket. Also, the government will withdraw up to Rs. 1 trillion from the National Small Savings Fund to fund the fiscal deficit. This could reduce the overall market borrowing programme of the government for the entire fiscal.

Retail as well as Wholesale Inflation eased # :

Retail inflation reduced significantly to 4.44% in Feb'18, down from 5.07% in the previous month. Though retail inflation growth subdued, it surpassed RBI's medium-term target of 4% for the fourth consecutive month. The Consumer Food Price Index also grew 3.26% in Feb'18, down from 4.70% in the previous month and up from 2.01% in the same month of the previous year. WPI based inflation slowed to a seven-month low of 2.48% in Feb'18 from 2.84% in the previous month on the back of softer rise in food and fuel prices.

Current Account Deficit:

Current Account Deficit (CAD) widened on YoY basis due to higher trade deficit driven by a larger increase in merchandise imports relative to exports. CAD expanded to $13.5 billion (2% of GDP) in Q3 FY18 from $7.2 billion (1.1% of GDP) in the preceding quarter and $8.0 billion (1.4% of GDP) in the same quarter of the previous fiscal.

Outlook:

  • After the increase in interest rates in Mar'18, market participants expect the Federal Reserve to announce another 2-3 hikes depending on the inflation and employment data. This could impact the foreign investment into the emerging markets specially India. Additionally, the fears of a trade war after President Trump announcement of increase in tariffs on Chinese goods could impact the global trades impacting currencies.
  • On the domestic front, with various policies implementation, augmenting improvement in economy and macro factors, the long-term outlook of the Indian debt markets continues to remain positive. With the strengthening macroeconomic indicators foreign investors continues to prefer investing in Indian fixed income market.
  • The macro-economic environment continues to remain robust. While inflation remains within RBI's target, fiscal deficit continues to concern investors. We expect RBI to remain cautious amidst local developments on inflation trajectory and clarity on monsoons which may further provide data to RBI to determine future course of policy actions.
  • 4The expectation of improvement in discretionary consumer demand & transmission of past policy rates may translate in the increase in the consumption as well as investment demand. Going ahead, we might see inflation impacted by volatile international crude prices, volatility in the exchange rate on the back of global financial market developments, development of monsoon et. al.
  • 4On the back of reduction in borrowing, yields have started drifting downward and with inflation improving, RBI is not expected to raise rates in near term. While in short term yields may remain range-bound, over medium term we expect yields to resume the downward trend, as robust macro-economic factors continue to support lower rates. In a scenario of global volatility creating local uncertainty, in the near to medium term, gives another opportunity to long term investors to make fresh allocations to debt funds, in a phased manner, with a 1 – 3 years' timeframe.

Source:
#MOSPI
*MFI Explorer
@Bloomberg
&CAG

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.