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The month of June'18 witnessed range bound movement for the Indian equity indices. The month started with marketers rejoicing after the Monetary Policy Committee (MPC) hiked policy rates by 25bps but maintained neutral stance and remained positive towards the economic growth of the country. Further to this the positive momentum was supported by the buying momentum of the domestic institutional investors (DII). Markets sentiments further got boosted post the US and North Korea summit which ended on a positive note. Lack of any major domestic trigger capped the gains in the Indian equity markets. Further an increase in the domestic inflationary pressure raised concerns on the rate hike schedule for the year which increased anxiety for the market participants. The later part of the month witnessed a lot of volatility on back of widening of fiscal deficit for India, INR touching all-time low and further uncertainties over oil prices across the globe. Market sentiments across the globe were negative on additional worries escalating on the US and China trade wars as China continued to retaliate against U.S. protectionist move. Volatility was seen on the Indian fixed income side. The domestic bond yields surged post the rate hike by the MPC of an increase of repo rate by 25 basis points to 6.25% for the first time since Jan'14. This movement was further backed by the increase in the interest rates by the Federal Reserve (Fed) for the second time in 2018. This momentum didn't sustain for a long time and changed it route as domestic bond yields started declining on back of the pressure from the global crude oil prices and the announcement of open market operation (OMO) by the Reserve Bank of India (RBI) to buy back government securities to the tune of Rs. 10,000 crore. Concerns over trade war in US & China, volatile crude oil prices and weakness in the rupee kept investors cautious and markets volatile.

Market Performance*

The Indian equity markets ended the month in a range bound manner, on back of weak global cues concerns over trade war and volatility in crude oil prices and weakness in INR. Nifty 50 was down by 0.20% (M-o-M) whereas S&P BSE Sensex was up by 0.29% (M-o-M). While, the mid and small cap indices were down by 3.52% (M-o-M) and 7.06% (M-o-M) respectively.

IIP^

India's Index of Industrial Production (IIP) gained momentum for the month Apr'18 and rose to 4.9% as compared to 4.4% in Mar'18, on back of momentum in the manufacturing and mining activity. The uptick in the IIP was due to an improvement in capital goods production as well as an uptick in overall manufacturing growth. Manufacturing sector grew 5.2% in Apr'18 compared with a 4.4% rise in Mar'18. Mining activity rose 5.1% in Apr'18 compared with a 2.8% growth in Mar'18.

Inflation^^

The Consumer Price Index (CPI) based inflation for the month of May'18 rose to 4.87% as compared to 4.58% in Apr'18. India's retail inflation came in higher after the Reserve Bank of India (RBI) hiked interest rates for the first time in four years in an effort to fend off inflationary pressures, this was further supported by the increase in prices of petrol and diesel and weakness in rupee. CPI inflation for the first half of 2018-19 was revised by RBI to between 4.8-4.9%, and to 4.7% in the second half of the fiscal year.

Trade Deficit##

Trade deficit widened to $14.62 bn in May'18 as against $13.72 bn in Apr'18. The trade deficit widening in May was mainly on back of rising imports of oil. During the month of May'18 India's exports grew to 20.2% to $28.9 bn while, import grew 14.9% to $43.5 bn. Oil import rose to 49.5% to $11.5 bn and Gold imports were up 16.6% to $1.18 billion in May'18.

Triggers

  • After the interest rate hike by the Fed, market participants expect the policymakers to take into account the growing risk of future financial instability before deciding the course of action in the coming months
  • Market participants would closely track the inflation data points which could trigger a future rate hike.
  • Investments by the foreign portfolio investors would be a key point to watch out for, which could help investments done by the domestic institutional investors (DIIs) and keep sentiments uplifted.
  • Investors would closely track the trend in global markets, the movement of rupee against the dollar and crude oil price which will remain a major concern for investors.
  • Market participants would watch out for the upcoming corporate earnings season which could be a trigger for the Indian equity market.
  • Expectations of good and evenly distributed rainfall could support the buying interest for the market participants. MSP increase by the government for the summer crops could weigh on RBI decision making in August policy

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.

Indian equity markets remained range bound during the month of June'18. During the first week of the month, market corrected due to the foreign investors selling Indian equities amidst U.S. Federal Reserve raising interest rate with a hawkish stance for the remaining part of 2018. Market participants also remained worried as weak macro-economic data flowed in the month as compared to May'18. During the latter part of the month, the Indian equity markets bounced back and S&P BSE Sensex reached a high of 35740. It however failed to remain at those levels and ended up marginally higher from the previous month. On the back of increase in consumption growth and economy normalising after the GST impact and demonetization related disruption. Q4FY18 GDP grew 7.7% and cumulated to 6.7% for FY18. For the quarter ended FY18, the earnings of most companies have remained in line with the market expectations.
 
Amid the hawkish move from RBI and US Fed, Indian equity markets remained range bound and the key market indices i.e. S&P BSE Sensex and Nifty 50 remained positive for the month. In Jun'18, INR depreciated by 1.06 per USD and closed at 68.47 per USD on 29th Jun'18 against 67.41 per USD on 31st May'18 whereas, crude increased by USD 2.42 per barrel from USD 75.17 per barrel on 31st May'18 to USD 77.59 per barrel on 29th Jun'18. For the month of Jun'18, NASDAQ and Nikkei were the major gainer with 0.92% and 0.46% respectively while, Hang Seng, Dow Jones and FTSE were seen trading lower than their previous month's close by 4.97%, 0.59% and 0.54%% respectively.

Market Performance**

For the month of July'18, Indian equity markets remained range bound majorly due to weak global market condition, cues concerns over trade war and volatility in crude oil prices and weakness in INR. Nifty 50 was down by 0.20% (M-o-M) whereas S&P BSE Sensex was up by 0.29% (M-o-M). While, the mid and small cap indices were down by 3.52% (M-o-M) and 7.06% (M-o-M) respectively. On sectoral front, some of the sectoral indices were seen in green such as S&P BSE IT and S&P BSE HealthCare which remained the top gainer by 7.70% and 3.47% respectively. Other sectors which fell during the month, were S&P BSE Consumer Goods, S&P BSE Oil & Gas, S&P BSE Metals, S&P BSE Bankex, S&P BSE Consumer Durables, S&P BSE Energy and S&P BSE FMCG by 7.08%, 5.34%, 4.02%, 2.52%, 2.24%, 1.01% and 0.69% respectively.

Growth`

Domestically, macro-economic variables continued to paint a healthy picture. India's Nikkei Manufacturing Purchasing Managers Index (PMI) in May'18 was seen at 51.2 lower than Apr'18 print of 51.60. The Services Purchasing Managers Index (PMI) was seen at 49.60 in May'18 as against 51.40 in Apr'18 majorly due to stagnation in order of new business and cost pressures due to increase in crude oil prices.

India's IIP slowly rose in Apr'18^

Industrial production saw a slight rise in growth to 4.9% in Apr'18 as compared to 4.6% in Mar'18. Cumulative IIP growth for the April-March 2017-18 period stood at 4.3%. As per sector based classification, contraction was observed in sequential momentum across Mining at -21.1%, Manufacturing at -11.2% and Electricity at -1.9%. 16 out of 23 industry groups witnessed positive momentum led by Manufacture of pharmaceuticals and botanical products at 23.4%, Manufacture of computer, electronic and optical products at 17.2% and Manufacture of other transport equipment at 14%. On the other hand, contraction was observed in Manufacture of tobacco products at -17.9%, Other manufacturing at -15% and Manufacture of electrical equipment at -12.6%.

On the usage front, all sub-categories recorded broad based sequential decline – primary goods by 12.0%, capital goods by 20.9%, and intermediate goods by 11.4%. Construction activity contracted after a period of 4 months by 8.9% MoM. Consumer durables fell by 6.4% after growing by 7.6% in the previous reading while Consumer Non-durables fell by 13.4% after growing by 4.2% previously.

FPI Inflows**

Uncertainty across the globe and volatility on domestic front amidst unstable Crude and US Fed increasing interest rate led the foreign investors reduced investments in Indian equity market. However, the domestic market players continued to see inflows and invested in the market during the month of June'18. FPIs outflow was to the tune of Rs. 4,831 crores while, the domestic investors invested in the equity markets to the tune of Rs. 6,555 crores into the Indian equities in the month gone by.

Outlook

The Indian macro dynamics, especially the fiscal deficit and current account deficit is currently weaker than the expectations. While GST collections are gradually doing better, other sources of revenue such as from disinvestment may be under pressure which could provide discomfort to the markets. The markets is expected to closely track earnings improvement in the time to come.

However, global fund flows are expected to be moderate this year and that is expected to continue given the global environment. Having said that, the overall long-term outlook of Indian equities remains intact as we are structurally well positioned to benefit once the global market conditions become healthier. In the near term, factors such as global crude price and the movement of USDINR could decide the path which the Indian equities will take.

An expectation of a better than normal monsoon has led to higher-than-normal sowing of crops across the country which is expected to increase rural income. This in turn will have a ripple effect on the economy as a whole.

Our economy with structural improvement continues to provide a period of sustainable growth and the pick–up in corporate earnings in upcoming quarters could offer better investment opportunities and investor could increase exposure to equities. We expect the markets to broadly move sideways and remain volatile in near term. Investors should benefit from such volatility and increase allocations towards equities in a staggered manner.

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 June'18, Indian 10 Year G-sec yields continued to remain range-bound with bearish sentiments prevailing, amidst concerns surrounding global trade and geopolitical issues as well as domestic macro indicators. On the global geopolitical landscape, tension between US and China continued to put pressure on global trade dynamics. US Fed in its recent meeting, raised interest rates for the second time this year and upgraded their forecast to four total increases in 2018 on improved economic data backed by decrease in unemployment numbers and higher inflation. In the Eurozone, Euro showed a downturn amid political upheaval in Germany's and after ECB's decision to keep interest rates at record low level in near term.

 
On domestic front, MPC in June'18 meeting raised interest rates by 25 bps and adopted a wait and watch approach awaiting more clarity on the inflationary impact of government's decision to increase MSP of food grains and the direction of global crude oil prices. Retail inflation in May'18 accelerated due to higher fruits and vegetables price. Indian 10 Year benchmark relaxed during the first half of month after the OPEC indicated that they may review production cuts. However, by the end of month, the Indian 10-year benchmark yields hardened again on expectation that the production cuts may be smaller than expected. Despite the indication of improvement in supply, Brent Crude closed at $79.44 per barrel as on 29th Jun'18 as compared to $77.59 per barrel as on 31st May'18. Increase in global crude price continued to put pressure on Indian rupee and weakened against the U.S. dollar by INR/USD 1.06 with INR/USD 68.47 on 29th Jun'18 v/s INR/USD 67.41 on 31st May'18. As a result, as compared to the previous month, fixed income yields normalised by 8bps to 7.90% on 31st June'18 as against 7.83% on 31st May'18.

Retail as well as Wholesale Inflation rose significantly#:

For the month of May'18 Retail Inflation grew at 4.87% from 4.58% in Apr'18 and significantly high as compared to 2.18% in May'17. The uptick in inflation was majorly due to surge in prices of fruits and vegetables by 12.33% and 8.04%, respectively. Consumer Food Price Index grew at 3.10% in May'18, as against 2.80% in the previous month. The retail inflation growth remained above the RBI's medium-term target of 4% for the seventh consecutive month. WPI based inflation for the month of May'18, rose sharply to 4.43% from 3.18% in Apr'18 on the back of significant increase in fuel items price to 11.22% in May'18 which was 7.85% in the previous month.

Current Account Deficit (CAD)& :

India's current account deficit (CAD) for 2017-18 widened on the back of a higher trade deficit. The deficit was primarily because of a higher trade deficit (US$ 41.6 billion) brought about by a larger increase in merchandise imports relative to exports. CAD print came in at US$ 13.0 billion (1.9% of GDP) in Q4FY18 increased from US$ 2.6 billion (0.4% of GDP) in Q4FY17, but moderated marginally from US$ 13.7 billion (2.1% of GDP) in the preceding quarter. For the last fiscal FY18, it widened to 1.9% of the GDP from 0.6% in FY17. Accordingly, trade deficit increased to $160 billion in FY18 from $112.4 billion in FY17 and the net invisible receipts were higher in FY18 mainly due to increase in net services earnings and private transfer receipts.

Outlook:

On the global front, going forward, future hike of interest rate by the US Fed would largely depend on sustained expansion of US economic activity, inflation within the medium terms target of 2% and strong labour market conditions. Fed projects the policy rate at 3.1% at the end of 2019 as compared with 2.9% seen in March'18 and 3.4% in 2020, unchanged from the prior forecast.

On the domestic front, with RBI maintaining a neutral stance, the market seems to believe that the current rate hike cycle is likely to be short. This led to limited market sell off with the 10-years yield remaining sticky in the 7.85-7.95% range. The rupee has held firm above 67 to the dollar and such a rate hike can send a signal for foreign investors that the returns in India could be going up. Hence, FPI flows could look positively now considering that they have been negative so far, this year.

Further, MPC upwardly revised the expectations for agriculture and allied activities on the supply side, driven by higher production of food grains and a positive scenario for monsoons.

In short to medium term, the Indian fixed income market could remain cautious over factors such as the distribution of a normal monsoon, domestic currency movement and the trend in global crude oil prices which could result in the market being volatile. Future RBI actions and uncertainty ahead of 2019 general actions is likely to keep markets on the edge. This rate hike cycle is likely to be shallow and market have already discounted about 50-75 bps rate hike. The short end of the corporate bond curve is attractively priced and regular investments in fixed income in the next year is likely to yield superior risk adjusted returns over 3-year period.

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.