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Despite trading volatile amidst geo-political tensions and weak global indices, the Indian equity markets the month of Jul'17 saw the equity markets reaching multi-year highs, cheered by the launch of the country's much-awaited Goods and Services Tax (GST) reform on July 1, 2017, healthy monsoon and better than expected reported corporate earnings. The markets had turned cautious mid-month after North Korea test-launched an intermediate-range ballistic missile showing geo-political concerns. However, they managed to bounce back after sentiments got a boost after India's services PMI rose to an eight month high in Jun'17 at 53.1 as against 52.2 in May'17. The US Fed awaited more clarity on Inflation and hence kept the interest rates constant. The ECB also has hinted towards an end of a policy easing mode in its policy meet. Bank of England and Japan's central bank have also moved towards a policy tightening mode. Some support to the Indian markets also came with the report that global and domestic private equity funds have pumped in around $11.3 billion in the country for the first half of the current year ending June 30, making it the record highest foreign direct investment into the country.

Market Performance*

After a slightly negative performance in the month of June'17, July'17 came as a month to cheer for to the Indian equity markets participants. The bellwether indices Nifty 50 and S&P BSE Sensex rose by 5.84% & 5.15% respectively to cross their previous all-time highs aided by the rising influx of capital in Indian markets through foreign portfolio investment and domestic investments. Improved expectations of corporate performance along with expectations of a normal monsoon season also have aided the equities uptrend this month. The market's climb signals the faith of foreign institutional investors (FIIs) in the Indian growth and reforms story despite near term glitches of impact of GST, Fed rate hike and lower GDP amongst all.

Rupee hits two-month high*

Amid US Dollar's slide in international forex market, Indian Rupee hit a 2 month high to end the month of Jul'17 at 64.18. The USD INR pair was seen appreciating slowly during the entire month due to strong influx of funds from FIIs as well as DIIs (domestic institutional investors). The dollar's slide was a resultant of failure of Trump administration to pass any legislations, receding tail risks in EU and China and a strong performance of the domestic equities.

IIP^

Industrial production as measured by IIP grew by 1.7% in May'17, moderating from 2.8% observed in Apr'17. This growth was largely led by an exceptional improvement in the production of consumer non-durables. As per sectoral classification, Mining, Manufacturing and Electricity grew by 1.52%, 6.38% and 5.38% respectively on sequential basis. The latest reading does signify mixed signs of recovery with growth observed in manufacturing as well as consumer goods. After an uptick observed in the start of fiscal FY18 in industrial production growth, this month observed slowing of the momentum.

Inflation ^^

India's retail inflation for the month of Jun'17 eased to fresh record low of 1.54% compared to 2.18% in the previous month led by a decline in prices of food articles, fuel and housing. On an annualized basis, costs of food and beverages decelerated for the second straight month by 1.17% mainly led by declining prices of cereals, vegetables and pulses while fuel prices dropped to a four-month low of 4.54%. Wholesale prices in India rose 0.9% Y-o-Y in Jun'17, compared to a 2.17% rise in May'17. Cost of manufactured products and fuel went up at a slower pace while falling of food prices led to the decline.

Core sector growth dips ^^

Due to contraction in output of coal, refinery products, fertiliser and cement, the growth of eight core sectors slowed to 0.4% in Jun'17 as against a robust 7% expansion in Jun'16. An unfavourable base effect and inventory trimming prior to the onset of the Goods and Services Tax may contribute to a Y-o-Y contraction in industrial output in Jun'17.

Triggers

  • Liquidity withdrawal and its strong signs by US, Japan and lately UK and Eurozone could create jitters among the equity investors. The seriousness and methods adapted by the central banks around the world for ending easy money policies and beginning to shrink balance sheets may be keenly watched by the market participants.
  • Farm loan waivers would result in a strain on state finances. With more than a couple of states opting for the waiver, how many more states will go for this needs to be watched closely. At a time when the government spending is aimed towards boosting capex, diversion of state resources towards farm loan waiver could prove damaging to capex recovery and infra spend.
  • On the GST Front, we expect the shift from 'unorganized to organized' to be more gradual as loop holes in the implementation get ironed out over time. We also expect unorganized businesses to adapt their business models or get organized in an effort to remain relevant.
  • Market participants may keenly watch the upcoming policy of RBI as the low inflation and positive macro-economic variables along with signs of weak global growth have put a strong case of an interest rate cut. This could further boost the sentiments of both the equity and debt markets in India.

Source:
# Department of Commerce
^ mospi.nic.in
^^ ICRA
* 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.

After a long wait, the Indian stock markets hit a new lifetime high in the month of Jul'17. The benchmark S&P BSE Sensex crossed a new level of 32,000 points while the broader Nifty 50 advanced to hit a new all-time high of 10,000 points for the very first time in its 21-year history. Domestically, implementation of GST has till now been smooth as most of the quarterly earnings reported have remained in line or have exceeded market expectations. Expectations of rate cut has increased after the recent data showed consumer inflation declining to 1.54% in Jun'17, the lowest in the current index that started in 2012 and less than 2.18% in May'17. The global monetary policy seen in the past month has been very stimulative. The Bank of Japan in its policy mentioned about buying government bonds at an annual pace of 80 trillion yen ($714 billion) and pushed back the timing for achieving its ambitious inflation target to FY19. Also, ECB hinted towards continuing its monthly asset purchases at the current rate of 60 million euros a month until Dec'17, or beyond, if necessary. The US Fed has laid out plans to wind down its 4.5 trillion-dollar balance sheet. But recent dovish tone suggests even that will be gradual, very slow and steady. All this have augured well for the Indian markets and has resulted in them surging to all-time high levels.

Market Performance**

The benchmark indices viz. S&P BSE Sensex & Nifty 50 gained 5.15% and 5.84% respectively for the month of Jul'17. The month even saw S&P BSE Mid-cap index & S&P BSE Small-cap index rising by 5.09% & 4.43% respectively. The rally was seen across major sectors; except FMCG. The top gainers were S&P BSE Energy, S&P BSE Metal, S&P BSE Bankex, S&P BSE Oil & Gas, S&P BSE Realty and S&P BSE IT with 10.74%, 9.25%, 8.02%, 7.48%, 7.00% and 6.15% respectively.

IIP^

India's industrial production increased in the month of May'17, registering a growth of 1.7% against 0.84% fall in April'17. On sectoral side Mining, Manufacturing and Electricity sectors for the month of May'17 stood at -0.9%, 1.2% and 8.7% respectively. On use-based classification, Primary goods grew at 3.4%, Capital goods at -3.9% and Intermediate goods by 0.7% for the month. The Consumer durables and Consumer non-durables recorded growth of -4.5% and 7.9% respectively. The increase in the IIP could be considered as an early indication of the improving industrial efficiency, which could be clearly visible in the times to come.

Growth^

India's manufacturing sector represented by Nikkei India Manufacturing PMI fell to 50.9 in Jun'17 from 51.6 in May'17, owing to a slow rise in factory new orders that resulted in weaker growth in production. Nikkei India Services Business Activity Index which tracks changes in activity at service companies on a monthly basis increased to 53.1 in Jun'17 from 52.2 in May'17. The upside was driven by solid and accelerated upturn in new work orders that resulted in a faster increase in activity. Additionally, the headline measure averaged 51.8 in the first quarter, thereby marking the highest quarterly figure since Q2 FY16.

FPI Inflows*

During the month of Jul'17, the Indian equity markets witnessed positive FPI (Foreign Portfolio Investor) as well as domestic flows. FPIs and the domestic investors invested in the equity markets to the tune of Rs. 6,330 crores and Rs. 8,129 crores respectively. Lowering inflation, strengthening rupee and the optimism about the earning result in a scenario where global growth still remains muted could be the key drivers which led to such high inflows.

Outlook

Indian equity markets continue to track the developments in the global markets. Growth globally is expected to remain subdued and the market participants may keenly track the policy actions of various central banks.

On domestic front, inflation has been at multi year lows and the advance of monsoon so far has been in lines with the expectations. Hence, the upcoming RBI policy might be now seen as a major event to gauge the direction of interest rates going ahead.

The corporate earnings result season so far has been in line with our expectations. We believe that the earnings are likely to remain subdued for corporate India in the near term & pick–up in 2HFY18. Markets are likely to track the first quarter results of the companies for investment triggers and the effect of implementation of GST, if any in short term. We believe that when the earnings cycle starts to revive, P/E multiples should expand further and hence believe that there is still upside left in the markets.

Long term investors should take advantage of any volatility and use it as an opportunity to add to the equity exposure as India remains one of the very few economies which have a stable currency and healthy economic growth potential. Any positive trigger in the global economy would lead to a sharp run up in Indian equities. However, any interim correction caused by unprecedented events could be used as an opportunity to enter the market by investors having medium to long term investment horizon.

Source:
^ MOSPI
$ Markit Economics
* 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.

Low inflation, low visibility of global growth and hawkish tone of some central banks across the globe fuelled the domestic fixed income markets to continue their downward interest rate trajectory during the month of Jul'17. Global market continued to remain uncertain due to US Fed's decision to remain status quo on Interest rates in Jul'17 meet citing the need of wanting more data points while ECB chose to keep on hold its monetary stimulus programme. During the month of Jul'17, Indian macroeconomic data showed some sign of improvement with trade deficit narrowed to $12.96 billion due to the reduction in gold imports and inflation fell dramatically as supply side bottleneck improved. Yields fell after the consumer price index-based inflation eased to a low of 1.54% in Jun'17 and the 10-year benchmark was seen at 6.47% towards the end of Jul'17. Markets had already factored in a 25 bps rate cut and RBI reduced interest rate by 25bps to 6.00% in its 3rd bi-monthly policy meeting held on August 2nd 2017 citing moderating inflation and easing core inflation to be the primary reasons. The overall reduction in global crude output increased the global oil prices by ~$5/barrel to $52.65/barrel by the end of Jul'17 from $47.92/barrel at the end of Jun'17. The rupee continued to strengthen marginally against the USD, settling at 64.19 in Jul'17 as against 64.58 in Jun'17.

RBI Third bi-monthly policy^:

Given the persistence of the downward trend in CPI inflation, both core and overall, the Monetary Policy Committee decided to support growth through a rate reduction of 25 bps in its third bi-monthly monetary policy for FY18. However, the transmission of this rate reduction is likely to be limited due to the existence of excess liquidity and lack of private investment demand. While the MPC have acknowledged that some of the upside risks to CPI inflations have not materialized, they continue to remain cautious with eye still on the medium term target of 4% for CPI inflation.

Inflation continued the downward trajectory#:

Retail inflation has reduced sharply to multi- year low and declined to 1.54% in Jun'17 as compared to 2.18% in May'17 majorly due to decline in prices of food articles and fuel. The consumer food price index contracted 2.12% in Jun'17 compared to -1.05% in May'17. Fall in price of vegetables, pulses and products primarily attribute to the fall in retail inflation though there was a marginal spike in fruit rates.

Wholesale Price Index (WPI) based inflation also slowed to 0.90% in Jun'17 from 2.17% in the previous month on the back of food inflation turning negative. The build-up inflation rate in this fiscal so far came in at -0.44% compared with a build-up rate of 3.71% in the previous-year period. Subsequently, prices of important crops like potato, vegetable, pulses, and oil seeds fell significantly. Further more than abundant monsoon covering majority of the country augurs well towards tempering of inflation going into 3QFY17.

Fiscal deficit at 80.8% of full-year target at the end of Q1FY2017-18$:

For the quarter ended Jun'17, the capital expenditure by the government rose from 19.9% of the same period previous year to 31.7% in Q1Fy18 which led to the government reaching to 80.8% of the fiscal deficit target of Rs. 5.5 trillion. In addition the revenue deficit target rose to 119.1% of the full-year target of Rs.3.2 trillion as compared to 79.6% the previous year. The numbers may not be strictly comparable as Union Budget happened one month before, which gave government more time to spend in the 1QFY2018

Outlook:

The volatility around the globe and the stable domestic macro-economic atmosphere makes Indian economy a chosen investment destination among emerging markets. The strengthening currency and reducing trend of commodity prices may benefit domestic cyclical on the medium to long term.

Going ahead, the release of minutes of Fed's June policy meeting raised bets of a more cautious stance of future rate increases amidst the unwinding of its balance-sheet. However, US policy making seems to be hitting a brick-wall with Trump administration in a disarray and unable to push any of its promised legislations through the Congress.

The RBI was hard pressed to cut given the sharp fall in inflation. The monetary policy stance taken by the RBI would provide a fillip to growth especially at a time of benign core inflation print and tepid private investment. The rate cut provides a boost to demand at a time when favourable monsoons augur well for keeping the inflation trajectory down. Given the prevalent inflation rate, there could be room to cut rates further but the inflation trajectory evolving in the next quarter or two could be the crucial deciding factor for it.

On the back of volatile global environment with US Fed remaining observant and other central banks and EU event, India remains relatively resilient. The macroeconomic stability and gradual pick-up in growth may help FPI inflows on the back of strong institutional framework and stable political situation. In short term, markets may remain volatile due to global events whereas with macro-economic factors continuing to remain strong and expectations of a better monsoon, are likely to make the interest rates continue to tread lower.

Source:
#MOSPI
^RBI
*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.