Skip Ribbon Commands
Skip to main content
home crmf > Pages > newsletterAug2018

Indian equity indices in the month of July'18 rose on back of positive sentiments amongst the market participants. The month started with positive news on progress of south-west monsoon rains spread across the country which took optimism amongst investor's ahead of the earnings season. The Nikkei India Manufacturing Purchasing Managers' Index (PMI) showed improvement in the domestic manufacturing conditions which boosted the domestic equity markets. Further to this, the positive momentum was supported by the buying momentum of the foreign and domestic institutional investors (FII & DII). On the global front, U.S. markets also came in positive, backed by some upbeat economic data for July'18 and optimism on the quarter earnings. Further, the Federal Reserve's (Fed) positive outlook on U.S. and better than expected U.S. economic data supported the positive momentum in the US markets. Investors found relief post reports that there would removal of trade barriers between US & Euro zone. The domestic bond yields fell during the month on host of positive sentiments, and closed at 7.77%. The month started with the increase in the minimum support price by the central government, which was largely in line with the market expectation. This was further backed by the weekly G-sec auctions which were subscribed by long term investors. There was further a decline in the global crude oil prices which led to the decline in the bond yields. Open market operations for Government securities were conducted by the Reserve Bank of India (RBI) which also boosted investor sentiments in the domestic bond market.

Market Performance*

The Indian equity markets ended the month in a positive note, on back of good macroeconomic indicators, distributed rainfall across the country, ruling party win in no-confidence motion in Lok Sabha and low crude oil prices. Nifty 50 was up by 5.99% (M-o-M) whereas S&P BSE Sensex was up by 6.16% (M-o-M). The S&P BSE Midcap and S&P BSE Small cap indices were also up by 3.64% (M-o-M) and 3.44% (M-o-M) respectively.

IIP^

India's Index of Industrial Production (IIP) slowed down the pace for the month May'18 to 3.2% as compared to 4.8% (revised) in Apr'18, mainly on back of slowdown in manufacturing activity. The significant decline in the performance of intermediate goods has been acting as a drag on the IIP. Manufacturing sector grew 2.8% in May'18 compared with a 5.2% in Apr'18. Mining activity rose 5.7% in May'18 compared with a 5.1% growth in Apr'18.

Inflation^^

The Consumer Price Index (CPI) based inflation for the month of June'18 increased to 5.00% as compared to 4.87% in May'18. This was driven by higher fuel prices and depreciating rupee. Amongst the CPI basket, food and beverages inflation eased of to 3.18% in June'18 from 3.29% in May 2018. Fuel and light inflation stood at 7.14 %, Clothing and footwear was at 5.67% and Housing inflation stood at 8.45% in June'18. With the latest reading inflation is nearing the upper tolerance level of 6% marked by the Reserve Bank of India. Further to this RBI had revised its retail inflation estimates upwards last month, estimating it to remain around 4.9% during H1FY2019.

Trade Deficit##

Trade deficit widened to $16.86 bn in June'18 as against $14.62 bn in May'18. The trade deficit in June'18 was the highest since Nov'14, mainly due to costlier crude oil imports. During the month of June'18 India's exports grew to 17.57% to $27.7 bn while, import grew 21.31% to $44.3bn. Oil import rose to 56.61% to $12.73 bn and Gold imports dipped to 3% to $2.38 bn in June'18.

Triggers

  • Investors would closely track geo-political situation especially the trade war between US and China the movement of rupee against the dollar and crude oil price which will remain a major concern for investors.
  • Investments by the foreign and domestic investors would be a key point to watch out for, which could keep sentiments elevated.
  • The ongoing corporate earnings season would be a key trigger to watch out for the Indian equity market.

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.

Contrary to the conditions of Global Trade war which were persistent in the month of June'18, Indian equities saw a sharp rally in the month of July'18. The macro backdrop for India turned favourable as crude oil prices declined, underpinning stabilization of INR post the sharp sell-off in June'18. Sentiments across the markets also turned positive with the comfortable win of the government in the no-confidence motion by the opposition and the rate cuts for 88 consumer items by the GST Council. Mid-caps and Small caps were seen trading up by over 4% in July'18 after rebounding from calendar year lows but continue to underperform the broader markets.
 
The earnings season so far has been in line with the market expectations. FIIs turned marginal net buyers in July'18 after recording outflows in the previous couple of months. The distribution of monsoon has also been good in most part of the country. The government announced sharp increases in minimum support prices for farmers, however PMI and Industrial Production continued its soft run for some successive months now. Initial positive macro indicators such as Chinese fiscal support to stabilize economic growth with support for infrastructure investments and easing of trade tensions between US-EU were supportive of commodities in general. Indian Rupee depreciated against the US Dollar while the Crude oil prices traded in a volatile territory in July'18. Global crude oil prices came off substantially which resulted in the energy sector to be the top performers with Nifty Energy index rising by ~8% during the month of July'18.

Market Performance**

For the month of July'18, Indian equity markets were positive on back positive sentiments optimism seen by the market participants due to fall in crude oil prices & improvement in the INR conditions. Nifty 50 was up by 5.99% (M-o-M) whereas S&P BSE Sensex was up by 6.16% (M-o-M) and the mid and small cap indices were up by 3.64% (M-o-M) and 3.44% (M-o-M) respectively. On sectoral front, most of the major sectors were positive, S&P BSE India Oil & Gas and S&P BSE FMCG were the top gainer by 9.99% and 7.13% respectively whereas S&P BSE India Metal was down by 3.10%.

Fiscal deficit`

Fiscal deficit in 1QFY19 amounted to Rs. 4.3tn (-2.9%) of the annual target. Gross fiscal deficit touched 68.7% of the annual budgeted target, this compares favorably vs. last fiscal when government had used 80.8% of its annual deficit target by June.

Growth`

Growth in India's manufacturing sector slowed in July amid modest gains in new orders. The Nikkei India Manufacturing Purchasing Managers Index, or PMI, fell from 53.1 in June'18 to 52.3 in July'18, edging closer to the 50-point line separating expansion from contraction. However, Indian services sector grew to the fastest since 2016 as the Services PMI rose to 54 in July'18 as against 52 in June'18. The Services PMI of 54.2 for the month of July'18 indicates improvement in the service sector which is the largest employer in the private sector. The performance was encouraging as the global economy is under the shadow of slowdown due to rising trade war tensions.

India's IIP fell in May'18^

Industrial production as measured by IIP grew by 3.2% in May'18, moderating from 4.8% growth observed in April'18. However, broad based upward momentum was observed across Mining at 4.6%, Manufacturing at 4.5% and Electricity at 7.2%. Because of an unfavourable base effect, cumulative IIP growth stood at 4.0% in FY19 so far. As per the use-based classification too, robust growth was observed under all its subcomponents - primary goods by 7.6%, capital goods by 7.8% and intermediary goods by 2.3%. Construction activity picked up pace once again, growing by 2.4% as against a contraction of - 9.3% in the April'18. Moreover, the Consumer Durables segment, considered as a proxy indicator for consumer demand, posted growth of 4.3% vis-à-vis - 6.2% in April'18. Consumer non-durables also grew by 3.1% on a sequential basis against -12.7% contraction witnessed in the previous month.

GST rate cut`

The GST Council cut GST rates of 88 consumer items (the bulk of which were reduced from 28% to 18% tax rate) and eased certain compliance requirements. The tax cuts were concentrated within consumer durables such as refrigerators, washing machines, small screen televisions, and other household equipment. The total quantum of the tax cuts amount to Rs.80-100bn, which is close to 0.05% of GDP. The impact on consumption and growth is expected to be limited. This will add to fiscal pressures on the back of GST collection shortfalls and the expansive increases in agriculture support prices.

FPI Inflows **

FIIs turned net buyers in the month of July'18 with net investments of Rs. 2263.92 crs in Indian equities. DIIs further strengthened their investments to the tune of Rs. 5512.04 crs for the month of July'18 (till 20th July'18)

Outlook

The Indian macro dynamics, especially the fiscal deficit and current account deficit are facing headwinds especially on higher crude oil prices. The micro environment at economy and corporate level however is strong and stable. The GST collections are on expected lines and with growth picking up we can expect the trend to continue. The corporate earnings have been good in the Q1 FY2019 results declared so far and the earnings seems to be on track to meet full year expectations for FY2019 unlike the case in last 2-3 years. An expectation of a normal monsoon has led to good sowing of crops across the country which can be expected to increase rural income. A good crop coupled with the government measures ahead of election in 2019 can have a positive impact on the economy as a whole.

However, global fund flows are expected to be moderate this year considering the US Fed tightening as well as concerns on trade wars. While we remain positive on the overall long-term outlook for Indian economy and equities, the near term impact of global events and sentiments on equities as an asset class globally, may be volatile. The impact of crude prices on Indian rupee can also impact the near term moves for Indian equities.

We maintain that investors should ignore the near-term volatilities and continue to invest and increase allocations towards equities in a staggered manner and benefit from the opportunities that these volatilities offer.

Source:
^ MOSPI
` Markit
** 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.

For the month of July'18, Indian Fixed income markets moderated marginally on falling crude prices, trade concern related to US and China and reports highlighting healthy progress of monsoon rains. Indian 10 Year G-sec yields eased during the month of July'18 with bearish sentiments amidst concerns surrounding global trade and geopolitical issues as well as domestic macro indicators.

 
On the global front, yields closed higher driven by robust growth in US and market participants expectation of policy tweaking by BOJ. However, BOJ maintained its target and kept monetary policy steady. In addition, market expected Bank of England to change its stance in policy meeting in the coming month. In its meeting during the last week of July'18, ECB decided to hold interest rates steady stating that the euro zone requires significant monetary policy stimulus, despite announcing last month the winding down of its quantitative easing (QE) program. On domestic front, MPC in its 3rd Bi-monthly policy meeting raised interest rates by 25 bps based on assessment of the current and evolving macroeconomic situation. However, RBI continued to maintain its neutral stance in consonance with the objective of achieving the medium-term target for retail inflation of 4% within a band of +/- 2%, while supporting growth. During the month of June'18, retail as well as wholesale inflation accelerated on the back of increase in fuel price. The pass-through of global crude oil prices impacted inflation in domestic petroleum products as well as transport services. Inflation also picked up modestly in respect of education and health.

  With Saudi agreeing to raise oil output based on the discussion with US, Brent crude prices reduced sharply by ~$5/barrel to $74.25/barrel by the end of July'18 from $79.44/barrel at the end of June'18. Decrease in global crude price helped Indian Rupee to remained range bound for the month of Jul'18 and reduced marginally by INR/USD 0.08 against the U.S. dollar with INR/USD 68.55 on 31st July'18 v/s INR/USD 68.47 on 29th June'18. As a result, as compared to the previous month, fixed income yields reduced marginally by 13bps to 7.77% on 31st July'18 as against 7.90% on 29th June'18.

RBI Third bi-monthly policy^:

Post the assessment of current and evolving macroeconomic dynamics, the MPC decided to increase the policy repo rate by 25 basis points while keeping the stance 'neutral'. The MPC reiterated its commitment to achieve the medium-term target for headline inflation of 4% on a durable basis and increased the policy repo rate under the liquidity adjustment facility to 6.50%. Consequently, the reverse repo rate under the LAF was adjusted to 6.25% and the Marginal Standing Facility (MSF) rate to 6.75%. The monetary policy committee took note of rise in retail CPI inflation for 3rd consecutive month in June. Even as food inflation remained muted, other components recorded moderate to sharp price increase.

Inflation accelerated during June'18# :

Retail inflation for the month of June'18 rose to 5.0% mark as compared to 4.87% in May'18 majorly due to increase in prices fuel. Among the key components which impacted an increase in inflation was growth in fuel and light inflation which rose to 7.14% in Jun from 5.80% in May'18. However, the consumer food price index rose to 2.91% in June'18 compared to 3.10% in the previous month amidst slower rate of price rise articles such as fruits, vegetables and cereals.

 
Wholesale Price Index (WPI) based inflation also edged up to 5.77% in Jun'17 from 4.43% in the previous month on the back of higher crude oil prices, an uptick in cotton prices and electricity tariffs and increase in price of manufactured products.

Fiscal deficit at 55.3% of budget estimate for FY2018-19 :& :

Fiscal deficit for Q1FYTD, remained lower as compared with the corresponding period of the previous year. For the period Apr-June 2018, fiscal deficit stood at Rs. 4.29 lakh crore or 68.7% of the budget estimate for FY19 as compared to 80.8% of the budget estimate of corresponding period of FY18. Total expenditure for the period Apr-June 2018 stood at Rs 7.08 lakh crore, or 29% of the budget estimate for FY19. Total receipts stood at Rs. 2.78 lakh crore or 15.3% of the budget estimate and Net Tax revenue was at Rs. 2.37 lakh crore, or 16% of the full-year target. Capital expenditure accounted 29% of the FY19 target, compared with 22.1% in the corresponding period of the previous year.

Outlook:

While good monsoons and cut in GST rates, if passed to consumers, are likely to dampen food inflation, MSP increase in likely to add to CPI inflation. Though oil prices have moderated a bit, they still remain elevated, posing risk to inflation. Further core inflation increased significantly in past few months reflecting pass through of higher input costs and improving demand. Growth is expected to remain robust with GDP projected at 7.4% for FY2019.

RBI will also closely monitor the regional distribution of monsoon and along with the staggered HRA revisions by state governments, it could have a staggering impact on inflation as well. Though the prices remained below its estimated trajectory, the RBI has forecast retail inflation at 4.6% in the second quarter of the fiscal, 4.8% in the second half of the fiscal and 5% for the first quarter of 2019-20.

Overall the policy is on expected lines with the MPC continuing to closely watch inflation. With 2 back to back rate hikes delivered, it is likely that the MPC may be in pause mode in October policy awaiting more information evolving global conditions especially on commodity prices and trade spats, pass through of MSP hikes, and impact of monsoon on food inflation. Further the MPC may wait to see the impact of 2 rate hikes, as there is lagged impact of monetary policy moves, on macro-economic parameters. Markets are likely to remain range bound in the coming future

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. This rate hike cycle is expected to be shallow as inflation is largely within RBI's range of 2%-6%. While in short term higher crude prices and uncertain political situation is likely to keep markets volatile, it is good opportunity to gradually increase allocation to fixed income as rates are attractive.

Source:
#MOSPI
*MFI Explorer
@Bloomberg
&CAG
^RBI

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.