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Upgrade of India's Sovereign ranking by Moody's, cancelling of OMO Sales by RBI, India rising to the top 100 positions with respect to the ease of doing business, improving 2QFY18 GDP were the major events that were witnessed in the Indian markets in the month of Nov'17. The month started with the yields in the Indian fixed income markets hardening amid global headwinds as well as domestic fiscal worries. Concerns pertaining to the rising crude prices and India exceeding its fiscal borrowing target for the year took the yields of the 10-year benchmark to over 7.00%. Even after Moody's Investors Service raised the country's sovereign credit rating, the benchmark yields did not recede as much as the investors expected it to. RBI's intervention by cancelling OMO Sales helped the 10 year yields change its upward trajectory, however the relief was short-lived as yields again went up over 7%. All the major global and domestic macro factors resulted in the bellwether indices viz. S&P BSE Sensex and Nifty 50 remaining range bound for the Nov'17. With OPEC members deciding to continue the supply cut for the remaining part of the year, Crude oil prices remained under pressure which impacted the overall market sentiments.

Market Performance*

The month of Nov'17 witnessed dented equity market sentiments resulting in broader market indices closing in red. Bellwether indices viz. Nifty 50 and S&P BSE Sensex fell by 0.19% and 1.05% respectively. The month saw mixed bag performances by various indices. While S&P BSE Consumer Durables, S&P BSE Realty and S&P BSE IT were the ones which performed well during the month while S&P BSE Metal, S&P BSE Telecom & S&P BSE Oil & Gas were the sectors seen under pressure

IIP^

The growth of Index of Industrial Production (IIP) slowed to 3.8% in Sep'17 from a revised 4.5% (originally 4.3%) in the previous month mainly due to subdued performance of the manufacturing sector, coupled with contraction in output of consumer durables. Growth of the manufacturing sector also slowed to 3.4% during the month under review from a growth of 5.8% in the same period of the previous year. The cumulative growth for the period from Apr - Sep'17 slowed to 2.5% from 5.8% in the same period of the previous fiscal. Consumer durable goods output contracted by 4.8% in Sept'17 as against a growth of 10.3% in the previous year.

Inflation^^

Spurred by rising food and fuel prices, India's retail inflation quickened to 3.58% in Oct'17, the fastest pace in seven months. Consumer Food Price Indexbased inflation grew to 1.90% in Oct'17 from 1.25% in Sep'17. However, government action like importing onions and containing hoarding, will be far more effective in containing food prices, thereby helping restrict the inflation in the coming months. WPI inflation moved to its highest level in six months and stood at 3.59% in Oct'17 as against 2.60% in the previous month. The primary article index stood at 3.33%, while fuel & power increased 10.52%.

Trade Deficit: ##

Trade deficit of our economy widened to its highest level in nearly three years in Oct'17 as export growth contracted for the first time in more than a year. The trade deficit widened to USD 14.02 bn in Oct'17 from USD 8.98 bn in the previous month. Merchandise exports for Oct'17 fell 1.12% on a yearly basis to USD 23.10 bn mainly due to fall in gems and jewellery and textile exports that also came down 24.51% and 39.23%, respectively. Meanwhile, imports grew 7.60% to USD 37.12 bn in Oct'17.

GDP: #

After declining to a three-year low of 5.7% in 1QFY18 – Indian 2QFY18 GDP rose to 6.3% after 5 straight quarterly decline led by the improvement in industrial growth. The pick-up signals indicate that the Indian economy has shaken off the lingering effects of demonetisation and GST rollout. A sharp bounce in manufacturing growth rate at 7% in second quarter from 1.2% in the preceding quarter was among the primary drivers behind the 2QFY18 GDP growth acceleration. Construction activity also expanded while farm growth slowed in second quarter as compared to the preceding three-month period. Market participants expect the GDP to grow at a faster pace in 2HFY18 aided by the low base effect. However, GST implementation glitches, on-going changes in the GST structure, and a possible cut in capex due to rising fiscal stress may limit upside in the subsequent quarters.

Triggers

  • The upcoming RBI Policy is likely to be closely observed by market participants.
  • With the inflation numbers well within RBI's target but with oil prices likely to put upward pressure on inflation, the central bank is expected to remain “neutral” and would keep a close watch on the incoming data as well as global commodity price movements, especially that of crude oil. The trajectory of crude oil prices after the production cut would be key for markets
  • Fiscal concerns are likely to dominate headlines in the near term as less than smooth roll out of GST could impact government revenues in near term
  • Sovereign India's upgrade to Baa2 by Moody's comes as a positive surprise to the debt markets participants and this move will now attract more FII flows which might be positive for the Indian economy
  • Though markets have already factored in the impact of US rate hike, the guidance on pace of future rate hikes is likely the key on driving market sentiment. Markets would follow the outcome of Fed's meeting in Dec'17. The overhaul of US tax regime is likely to also drive global markets.

Source:
* Bloomberg
^ mospi.nic.in
^^ ICRA & RBI
# Central Statistical Office
## 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 month of Nov'17 had some surprises for the Indian markets. However, on a month on month comparison, the overall sentiments in the Indian markets remained flat on the back of weak domestic macro-data, along with geo-political tensions in the Middle East. The month begun with the reporting of higher retail as well as wholesale inflation numbers, lower IIP and moderating PMI and India's high public debt as a point of continued concern which resulted in the markets losing the momentum it was able to gather over the past month. However, India Inc. got two big surprises in a span of just 20 days; entering Top -100 global ranking in ease of doing business and India's credit rating upgraded by Moody's from Baa3 to Baa2 after 14 years were the announcements which came as something to cheer about. These two in quick succession lifted investor spirits after a dull and weak period of growth effected by demonetization and GST. The latter half of the month also saw the GST council reducing rates on a host of items. Positive cues coming from global markets in US and Eurozone have been encouraging for global growth while China's reducing exports have raised a concern. Towards the end of the month, Indian economy bounced back from a year-long slowdown, marking the GDP growth of the country at 6.3% in 2QFY18 on improvement in industrial growth. What also boosted investor sentiments was the better than expected earnings reporting by the corporates. Overall, the markets were seen to be almost neutral with the benchmark indices viz. Nifty 50 and S&P BSE Sensex ending at 10226.55 and 33149.35 respectively.

Market Performance**

News from around the globe coupled with mixed domestic data flows kept the markets in a tight range during the month of Nov'17. While the indices fell during the first half of the month, India's rating upgrade and GST council relooking at various rates, rendered some optimism. Bell weather indices like S&P BSE Sensex declined by 0.19% while Nifty 50 recorded losses of 1.05%. Meanwhile, S&P BSE Mid-Cap rose by 1.99% while S&P BSE Small-Cap gained 3.57%.

S&P BSE Consumer Durables, S&P BSE Realty and S&P BSE IT were the top performing sectors during the month rising by 16.22%, 6.27% and 3.56% respectively. S&P BSE Metal, S&P BSE Telecom & S&P BSE Oil & Gas were the sectors seen under pressure falling by 5.62%, 3.96% and 3.77% respectively.

IIP^

The index of industrial production saw a slowdown coming in at 3.8% in Sep'17 as compared to 4.5% in Aug'17 (revised from 4.3%). Though an upward momentum sustained across sectors, growth in manufacturing and electricity was at a lower rate on a sequential basis. Driven by a higher coal output, high growth in the mining sector positively impacted the headline IIP index. As the impact of GST disruption eases, momentum in industrial production is expected to rebound.

PMI`

The Nikkei Manufacturing PMI in India jumped to 52.6 in Nov'17 from 50.3 in the prior month pointing to the strongest expansion in manufacturing sector since Oct'16, as both output and new orders expanded at the fastest pace in 13 months, employment grew the most since Sep'12 and new export orders increased for the first time in three months. Meanwhile, there was a pick-up in inflationary pressures, with input costs increasing the most since April. The rate of output charge inflation was marginal.

The Nikkei Services PMI in India slumped to 48.5 in Nov'17 from 51.7 in the preceding month. It was the first contraction in services activity since Aug'17 as July’s Sood and Services Tax (GST) continued to affect businesses. New orders declined while employment growth eased from Sep'17. At the same time, input cost inflation accelerated to the fastest since Oct'13 while charge inflation quickened to the strongest since Jul'17.

Inflows in Indian Equities**

Continuing the trend witnessed in the last month, FPIs (Foreign Portfolio Investor) increased exposure to Indian equities in the month of Nov'17. FII’s turned out to be net buyers in the Indian equity market to the tune of INR 19727.65 crores. Domestic mutual funds continued their buying streak with net investments of around INR 10668.68 crores during Nov’17 (upto 27th Nov’17).

Outlook

Globally, market participants would remain observant on the US Fed's decision of a possible rate hike during the upcoming FOMC meeting in Dec'17. The decision would largely dependent on US economic data as well as global dynamics. Global macroeconomic situation is expected to remain volatile in the near term. However, with the macro-economic variables in India continues to remain strong compared to other emerging economies.

The earnings outcome for Q2 FY18 thus far suggests some reversal in the profit growth (~13% PAT growth for NIFTY companies) along with higher topline growth and improved operating profits. The broad-based growth in earnings is expected to continue going forward with corporate profits and margins likely to start responding to the improving economy by H2FY18. The direction of the market in the medium term would primarily be driven by macroeconomic developments and news flows surrounding corporate earnings.

Improved earnings and economic data, relaxation in GST provisions and PSB recapitalization move helped Indian equities to be one of the best-performing market among the emerging economies. Policy reforms and robust liquidity are expected to support markets going ahead.

Recent structural changes by the government are likely to be growth augmenting over the medium- to long-term by improving the business environment, enhancing transparency and increasing formalization of the economy. Despite the short-term aberrations, on a long-term horizon, we believe India is slowly heading towards a period of sustainable growth. Though there could be intermediary volatility, investors with long term investment horizon, should take advantage of this interim volatility and should use it as an opportunity to add to the equity exposure in a staggered manner.

Source:
^ MOSPI, ICRA
` 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.

Yields on the 10 Year benchmark rose for the month of Nov'17, led by increase in crude oil prices, uncertainty over fiscal numbers, rising inflation as well as global uncertainties. Moody's decision to raise India's sovereign ratings by a notch during the midmonth, uplifted the enthusiasm of market participants. In addition, the central bank's decision to scrap open market sales helped yields retrace sharply. However, even these moves couldn't help the interest rates reverse its short-term downward trend, eventually resulting in the hardening of yields during the month of Nov'17. The Indian 10-year Benchmark G-sec yields, which were seen at 6.86% on 31st Oct'17, rose by 20bps to 7.06% on 30th Nov'17. On the global front, China posted tepid numbers for both industrial production and retail sales growth in the last month as well as the uncertainty over U.S. tax reform too kept the market participants vigilant. During the month of Nov'17, Indian macro-economic data showed some sign of improvement with GDP growing at 6.3% YoY in Q2FY18 as compared to the previous 5.7% in the previous quarter led by higher growth in key manufacturing sector. However, CPI as well as WPI based inflation increased in the month of Oct'17. The overall reduction in global crude output as the OPEC and non-OPEC members agreed to extend output cuts until the end of 2018 increased the global oil prices by ~$2.20/barrel to $63.57/barrel by the end of Nov'17 from $61.37/barrel at the end of Oct'17. The rupee appreciated marginally against the USD, settling at Rs. 64.75/$ on 30th Nov'17 as against Rs. 64.46/$ on 31st Oct'17.

India's sovereign rating upgrade; Outlook stable~:

Moody's upgraded India's sovereign bond rating from Baa3 to Baa2, a first in 14 years on the back of continued reforms and adherence to fiscal discipline. The ongoing reforms measures taken by the government such as the new Goods and Services Tax (GST) regime and the mechanisms for resolving bad loans and re-capitalising public sector banks were the most important measures resulting in the rating upgrade. Moody's believes that the current reforms will advance the government's objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth. The reform program will thus complement the existing shock-absorbance capacity provided by India's strong growth potential and improving global competitiveness.

Retail Inflation jumps to 3.58% in Oct'17^:

Consumer Price Index based inflation rose to 3.58% in Oct'17 from 3.28% in Sep'17, but remained below RBI's target of 4%. Housing, fuel and light as well as clothing added to the increase in inflation rising by 6.68%, 6.36% and 4.76% on a yearly basis, respectively. WPI based inflation moved to its highest level in six months and stood at 3.59% in Oct'17 as against 2.60% in the previous month, primarily due to the substantial increase in fuel & power by 10.52% with primary article index by 3.33%.

India's Growth - revived#:

India's Gross Domestic Product (GDP) grew 6.3% YoY in Q2FY18 as compared to the previous 5.7% in the previous quarter led by higher growth in key manufacturing sector. On Gross Value Added (GVA) basis, the economy rose 6.1% as against 5.6% rise in Jun quarter of 2017. Manufacturing output rose 7% in the Sep quarter, significantly higher than 1.2% growth in Jun quarter. On the other hand, agriculture output increased 1.7%, slower than 2.3% expansion in the previous quarter.

Fiscal deficit touched 96.1% of FY18 target&:

On the back of increase in capital expenditure, the fiscal deficit at the end of Oct'17 reached 96.1% of the budgeted estimate. The government's total expenditure increased on sequential basis and totalled to Rs. 12.93 lakh crore or 60.2% for the period Apr-Oct'17. The capital expenditure by the government rose to 52.60% and revenue expenditure to 61.5% for the period Apr-Oct'17, due to which the fiscal deficit for the government reached to Rs. 5.25tn of the total target of Rs. 5.46tn. In addition, the revenue deficit has overshot its budgetary estimate and rose to 125% of the full-year target of Rs. 3.2tn as compared to 92.5% the previous year.

Outlook:

  • Compared to the volatility entrenched around global economies like the US and Europe, volatility in India remains to be low compared to its global peers. Going forward, the US Fed Policy decision coupled with the US tax regime overhaul, would be instrumental in defining the path of the markets globally. The decision would largely dependent on US economic data as well as global dynamics. The global markets could continue to remain volatile as major central banks remained vigilant over the macroeconomic developments.
  • The pause of OMO sales and the surprise upgrade of India's Sovereign rating by the rating agency has not only cheered the markets but also has provided much needed reversal in short term trend in yields. The rating upgrade may enhance investors' risk appetite and could also support the foreign investor inflows in the economy. The reforms by the government and RBI would likely contribute to a gradual decline in the interest rates by bringing out the reduction in the general government debt burden over the medium to short term. With the inflation numbers, well within the RBI's target, the central bank is expected to remain “neutral” and in “pause” mode in the upcoming monetary policy and would keep a close watch on the incoming data as well global commodity price movements, especially crude oil.
  • The domestic macro-economic stability and gradual pick-up in growth may help FPI inflows on the back of strong institutional framework and stable political situation. The upgrade by Moody's is expected to have strong positive impact on the yields in the longer term. We continue to believe that a strategy which focuses on current accruals and active duration management could offer better risk-adjusted returns.

Source:
#MOSPI
^RBI
*MFI Explorer
@Bloomberg
&CAG
~Moody's Analytics

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.