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May'17 saw the release of FY17 GDP data which showed India's economy growth at 6.1%, primarily because of demonetisation adversely affecting the economic activity. Industrial output growth also slipped to 2.7% in Mar'17, chiefly because of poor performance of the manufacturing sector based on the revised base year of 2011-12. Contained retail and wholesale inflation (base 2011-12) resulted in the yields in the 10-year benchmark soften by around 30 bps in the month of May'17. Weak economic data has led the US Fed to remain in a pause mode and is expected to be data driven in the coming future. The forthcoming monsoon season and the strong macro-economic indicators will be crucial for RBI to decide it's future course of action in its upcoming policy in June'17.

Market Performance*

Indian equity markets closed on a positive note in the month of May'17. Benchmarks Nifty 50 and S&P BSE Sensex gained ~3.41% and ~4.10% respectively. The earnings of the companies were in lines with the expectations. However, we believe that earnings will pick-up from the 2HFY18.

GDP^

GDP expands at 7.1% in FY17, but slows to 6.1% in Q4 as demonetisation effects is continued to be seen. GDP growth has displayed a downtrend over the quarters of FY2017, from 7.9% in Q1 to 7.5% in Q2 to 7.0% in Q3 and further to 6.1% in Q4. The distinct downtrend in GDP growth over the quarters of FY2017 suggests that the slowdown in growth that had already set, was intensified by the note ban. Demand and purchases during the festive season and a favourable base effect appear to have contained the impact of the note ban on consumption growth in Q3 FY2017, which was followed by a sharp dip in Q4 FY2017.

IIP^

India's factory output or Index of Industrial Production (IIP) grew 2.7% in the month of March 2017 as against a drop of 1.2% in February 2017. As per the data based on the new base year, the manufacturing sector output slowed to 1.2% in Mar'17, from 5% in the same month of the previous fiscal. Electricity generation too slowed to 6.2%, from 11.9%in Mar'16. The mining sector, however, expanded by 9.7% in Mar'17 compared to a growth of 4.7% a year ago. The new GDP data showed limited impact of a rebased IIP, as the estimates for the quasi corporate and unorganised sector appear to have undergone revisions, while the bulk of the manufacturing sector have remained unaffected.

Inflation^^

Price pressures cooled significantly in the month of April, with both retail and wholesale inflation falling. Wholesale inflation for April was measured using a new base year, a revised basket of goods and a changed methodology which is expected to make the index a better measure of producer prices in the economy. Consumer price inflation fell to 2.99% in Apr'17 compared to 3.89% in Mar'17. Price indices for vegetables and pulses fell sharply compared to a year, leading to a fall in the headline inflation rate. Headline retail inflation is now well below the Reserve Bank of India's medium term target of 4%. After bouts of divergence, the month of April saw wholesale inflation fall in tandem with retail inflation. Under the new series, wholesale price inflation stood at 3.85% in Apr'17, compared to 5.29% in Mar'17. Under the old series, wholesale inflation in March stood at 5.7%. A fall in inflation levels, both retail and wholesale, could come as a relief for bond market traders, who have been fearing tighter monetary policy from the RBI

Trade Deficit #

Strong performance by petroleum, engineering and textiles sectors pushed up India's exports growth by 19.77% to USD 24.63 billion in Apr'17. However, trade deficit also witnessed about three-fold increase to USD 13.24 billion mainly on account of sharp jump in gold and crude oil imports during the month. India's trade deficit widened to levels not seen since Nov'14, as the continued recovery in gold imports offset the eighth straight month of an increase in exports. The deficit stood at $10.4 billion a month ago and at $4.8 billion in Apr'16. Imports in April rose 49% to $37.8 billion compared to a year ago, led by a significant increase in imports of gold and crude oil products. The value of gold imports increased 211% from last April to $3.8 billion, continuing the uptick which began in Jan'17 after a lull during demonetisation.

Triggers

  • On the global front, the decision of the trajectory of interest rates will be decided in the US Fed's upcoming meeting based on release of key economic data.
  • Eurozone elections in Italy, BOE's policy decision and the events surrounding Brexit could be seen as key trigger points for the direction of global markets
  • Geopolitical issues would dampen the moods of the market participants as it may see flow of funds away from the emerging markets.
  • With IMD's forecast, expectations of normal monsoon have increased. The progress of monsoon is likely to help in determining the inflation trajectory going forward.
  • The implementation of GST and the upcoming RBI policy might be closely tracked by the market participants in the time to come.

Source:
# http://commerce.nic.in/tradestats/filedisplay.aspx?id=1;
^ 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.

During the month of May'17, Indian stock market firmed up to reach new highs; breaking the 31000 mark amid easing concerns over U.S. interest rate hikes, policy reforms and on expectations of a good monsoon. The month also witnessed cyber threat impacting major economies; however, the impact was not significant on Indian businesses. Concerns related to the geopolitical issues such as North Korean ballistic missile launch and Trump's visit to the Middle East added to the volatility. However, the optimism around tax reforms and other Trump's policies which could have lifted the economy may be fading away. Domestically, during the month, GST Council announced a 4-tier GST tax structure with lower rates for essential items and the highest for luxury and 'demerit' goods which is expected to be implemented from 1st July'17. Indian currency depreciated marginally during the month of May'17 from INR/USD 64.25 on 28th Apr'17 to INR/USD 64.51 on 31st May'17 whereas, crude reduced by USD 1.42 per barrel from USD 51.73 per barrel on 28th Apr'17 to USD 50.31 per barrel on 31st May'17.

The positive macros and continued foreign/domestic participation led the key market indices i.e. S&P BSE Sensex and Nifty 50 continuing their upward momentum. Globally, political as well as the financial events led to the major economies remaining volatile with some bit of improvement. FTSE and Hang Seng were the major gainer with 4.39% and 4.25% respectively while NASDAQ and Nikkei traded in 2.25 -2.50% range with Dow Jones remaining flat for the month.

Market Performance**

The Indian Equity markets ended the month of May'17 with a gain after scaling a new all time high. S&P BSE Sensex crossed 31,000 levels and Nifty 50 traded above 9600 mark during the month. On net basis India's bellwether indices viz. S&P BSE Sensex & Nifty 50 gained by 4.10% and 3.41% respectively while S&P BSE Mid- Cap & S&P BSE Small-Cap decreased by 1.17% and 1.90% respectively. On sectoral front, most of the sectoral indices were seen in green with S&P BSE FMCG, S&P BSE IT and S&P BSE Auto remained the top gainers, rising by 7.37%, 6.35% and 6.06% respectively. Other sectoral indices remained in red zone such as S&P BSE HealthCare, S&P BSE Consumer Goods, S&P BSE Oil & Gas and the S&P BSE Metal which fell by 9.69%, 1.51%, 1.44% and 0.49% respectively.

Growth'

Manufacturing conditions in India continued to show improvement during the month of April'17. The seasonally adjusted Nikkei India Manufacturing remained unchanged at 52.5 in April'17 as compared to Mar'17. Stronger growth of new orders and increase in demand conditions with slight increases in employment and buying levels boosted the upturn in total new business received by Indian manufacturers during the month. Whereas, the Indian service sector experience slower rise in services activity with 50.2 in Apr'17 as compared to 51.5 in Mar'17 owing to the weakest increase in output, marginal expansion of new business and employment and fall in level of business sentiment.

India's March IIP rises^

The government released a new base-year series for IIP. According to the revised IIP data with the base year as 2011-12 that adjusts the basket of goods to reflect changes in the economy showed a rise in India's industrial activity to 2.7 % in Mar'17 as compared to 1.9 % in Feb'17 (lower than the 5.5 % seen in Mar'17) on account of increase in activities in mining and electricity. During the month of April'17, manufacturing output grew 1.2% on a year on year basis and electricity production grew 6.2% while mining rose 9.7% as against Mar'16.

FPI Inflows**

During the month of May'17, the Indian equity markets continued to remain the preferred investment destination from the perspective of political stability and key structural reforms such as GST and corporate governance. The market 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. 7,711 crores and Rs. 9,935 crores respectively, into the Indian equities in the month gone by.

Outlook

Global conditions are still unclear with the long awaiting US policy reforms. In addition, given the sharp rise in the markets, Indian equity markets are expected to see increase in volatility due to the geopolitical concerns like the testing of North Korean missile program, Brexit and the upcoming Euro zone elections.

While expectation of normal monsoon spurs hope in rural income, the increased govt. spending and higher allowance for public sector employees may bolster activity and consumption. In addition, the manufacturing sector is showing signs of a marginal pick up which indicates signs of output growth in the year ahead.

The implementation of a multi-tier GST starting 1st July'17 would play an important role in transforming the Indian economy and lead to substantial economic gain in the long term. However, in the short term supply side issues related to inventory de-stocking is likely to impact production.

We expect the corporate earnings growth to gradually improve as macro-economic growth picks up led by rural demand and show its maximum impact in 2HFY2017-18. The Indian equity market remains one of the preferred investment destination on back of improving macroeconomic environment, stable currency and improving corporate performance. We expect the market to remain structurally positive in the long term and short term volatility could be seen as an opportunity by the investor to increase exposure to Indian equities.

Source:
^ MOSPI, ICRA
` Markit
** ICRA MFI Explorer, Data as on 28th April’17

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.

During the month of May'17, Indian fixed income market strengthened on the back of stable macros and strong economic outlook. Yields of 10 year G-sec rallied by around 30bps during the month. However, there was volatility entrenched in the economy in the absence of strong global trigger such as US policy reforms and expectation of a rate hike by the US Federal Reserve during the policy meet due next month. Global environment continued to remain uncertain with non-clarity on Trump's decision of announcing key measures for smooth conduct of government affairs as well as the results of French election. US FOMC minutes as well the OPEC meeting in the month of May'17 had no significant impact on the global markets. US Federal Reserve continued its status-quo stance citing recent data release as 'transitory' leaving room for future rate hikes.

Amidst the global volatility and geo-political uncertainty, the domestic factor's such as sufficient liquidity, lower crude price and the appreciating rupee strengthened the fixed income markets. Statement from the Ministry of Finance about the implementation of 7th CPC and GST having no significant impact on inflation braced confidence in the market. With these key factors and the expectation of better monsoon fuelled expectations of lower retail inflation bode well with the market participants and helped bond rally further. The 10Y G-sec saw a downward trend and softened to 6.66% (GS 2027) on May 31, 2017 as compared to 6.96% on Apr 28, 2017. Foreign institutional investors (FIIs) as well as domestic participants continued to be net buyers with inflows of Rs. 17,989 crores and Rs. 4,166* crores respectively in the month of May'17 based on stability returning to the Indian markets due to healthy macroeconomic scenario and reform measure including the political stability.

Government meets Fiscal deficit target of 3.5% for FY2016-17~:

Fiscal deficit for the FY2017 came in at 3.5% of GDP, in line with the budgeted estimates or Rs. 5.35 lac crores. With the target of gradual fiscal consolidation government further aims to bring the fiscal deficit down to 3.2% of GDP i.e. the gap between the expenditure and revenue for the fiscal 2017-18. As per the CGA, the revenue deficit during the last fiscal was 2.02% of the GDP i.e. Rs. 3.08 lac crores for FY 2017-18. As per the provisional data, the fiscal deficit in April 2017 was 37.6% of the budget estimate, as against 25.7% in the year-ago period.

Retail Inflation inched downward with a new base: #

India's retail inflation, plunged to 2.99% in Apr'17 as against 3.89% (revised from 3.81%) a month ago, mainly led by a decline in prices of food articles. The Consumer Food Price Index grew 0.61% in Apr 2017, slower than 2.01% in Mar 2017. Retail inflation thus grew at the slowest pace since formal introduction of the index in 2012. In keeping with its practice to revise base years periodically and change the basket of goods included, the government released a new base-year series of the WPI. Based on the new series, WPI stood at 3.85% in Apr'17 compared to 5.29% in Mar'17.

Outlook:

On the global front, US Fed policy is still in unclear waters. Inflation and growth in US look weak and are creating a dilemma in the minds of global market participants over the direction of interest rates going forward. Market participants may keenly watch the decision of the US Federal reserve in the upcoming meeting in June '17. Global as well as the local markets may remain focused on major triggers such as employment results in the US, the UK election and the Fed meeting next month.

Slowdown in the pace of economic growth i.e. Indian GDP print at 6.1% in Q4 FY2016-17 could prompt RBI to be more dovish in its June'17 policy thereby supporting growth. However, the central bank could wait for various other geopolitical as well as macroeconomic factors and it would be reluctant to reverse its course particularly when US Fed is likely to raise rates as market expects.

Factors such as a normal monsoon which is poised to boost rural income, strengthening rupee and the decreasing crude price could be the key indicator for strong fixed income market in medium to long term. The fiscal results have been in line with the budgetary estimation and with the improving INR and reducing crude prices could further strengthen the fiscal health and reinforce strong balance sheet of the economy in the coming year.

The current volatile global situation and the healthy Indian macros provide an investment opportunity debt instruments other than government bonds which looks attractive. With the expectation of normal monsoon and RBI being vigilant over the key macro indicators may have favourable impact on the bond market dynamics, keeping the yields range bound and soften going forward. On a long term perspective, fixed income market could remain a prominent investment destination in comparison to other major economies.

Source:
#MOSPI
^RBI
*MFI Explorer
~Controller General of Accounts
@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.