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The month of May'18 witnessed volatility for the Indian indices but saw S&P BSE Sensex moving around the range of 35,000. The volatility was on back of weak global cues, political uncertainty in the state elections and unpredictable crude oil prices. Indian equity markets started the month on a weak note mainly due to weak global cues. Investors in the Indian equity markets were further concerned about the state elections which took place during the month, further adding to the political uncertainty over the formation of the government. Investors remained side lined post the increase in the inflation numbers (both wholesale and retail) showcasing concerns. Markets further witnessed volatility in the crude oil prices. Globally markets were subdued on back of increase in the interest rate by the U.S Federal Reserve in the upcoming meeting. Assumptions over faster than expected rate hike further added to the volatility of the global markets. Further volatility remained as investors remained cautious because of the ongoing talks on trade between U.S. & China. The domestic fixed income yields traded volatile and hardened during the month. Initially the start of the month domestic yields witnessed a downfall post the Reserve Bank of India (RBI) relaxed norms for the foreign investment in government securities. Post CPI inflation numbers yields rose in the middle of the month. Investors remained cautious on back of concerns on persistently high global crude oil price. The bond yields further rose after the GDP announcement for the quarter end Mar'18, as chances of rate hike increased. Concerns that the government might test the Oil companies to absorb the burden of high crude oil prices kept the Indian markets low.

Market Performance*

The Indian equity markets ended the month on a flat note, on back of weak global cues and positive macro-economic data. Nifty 50 was down by 0.03% (Mo-M) whereas S&P BSE Sensex was up by 0.46% (M-o-M). While, the mid and small cap indices were down by 5.87% (M-o-M) and 6.26% (M-o-M) respectively.

GDP^

India's GDP rose at 7.7% in Q4FY18 as compared to 7.0%, 6.3% and 5.6% in Q3FY18, Q2FY18 and Q1FY18 supported by strong growth in agriculture, manufacturing and construction sector. The full FY18 growth estimate was revised upward to 6.7% from 6.6% which is in line with the Economic Survey forecast. India outpaced China as the world's fastest growing major economy by nearly a percentage point with India's GDP growth rising in Q4FY18. The strong growth fades effect of demonetisation and the rollout of the goods and services tax (GST) done last year. The manufacturing sector grew at 9.1% in Q4FY18 from 6.1% growth in the same period last year. Similarly, construction witnessed massive jump of 11.5% from a de-growth of 3.9% a year ago.

IIP^

India's Index of Industrial Production (IIP) slowed down to 4.4% in Mar'18 as against 7.1% in Feb'18, due to an unfavourable base effect and a broad-based slowdown in output of goods. The decline in IIP reflects a slowdown in manufacturing sector, whereas mining and electricity sectors, also have seen slower growth than in previous months. There was a deteriorating performance in capital goods, as well as modest serial dips in the growth of the other categories except consumer non-durables.

Inflation^^

The Consumer Price Index (CPI) based inflation for the month of Apr'18 came in at 4.58% as compared to 4.28% in Mar'18. India's retail inflation came in higher mainly due to rise in prices of items such as education, household goods, and personal care items as well as petrol and diesel prices. The CPI for Apr'18 remained in the medium-term target of the Reserve Bank of India (RBI) well within the band of 2%-6%.

Trade Deficit##

Trade deficit widened slightly to $13.72 bn in Apr'18 as against $13.25 bn a year ago. During the month of Apr'18 India's exports grew 5.2% to $25.9 bn while, import grew 4.6% to $39.6 bn. The trade deficit for FY18 grew to $156.8 billion from $105.72 billion in the previous year, mainly driven by a rising oil import bill. Gems and jewellery exports fell 16.9% to $3.3bn. Gold imports declined 33.05% Y-o-Y to $2.6bn. Petroleum and crude imports increased 41.5% to $10.4bn from last year.

Triggers

  • 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.
  • The next batch of corporate earnings are expected to be better than the previous quarter which could likely be positive for markets. However, political uncertainty could keep markets on the edge.
  • Going forward, industrial output growth is expected to be better due to the forecast of a normal monsoon season, robust vehicle sales, the government's infrastructure focus and sector-specific programmes like housing for all.
  • Geopolitical tensions and volatility in commodity prices, globally and any announcement on the trade policy front would be carefully observed by the market participants.

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.

The month of May'18 was influenced by several global events and local macro-economic variables. In the initial weeks, the resilient domestic market succumbed to the global uncertainty on fears set-off by US-China trade war, rising US bond yields and due to local issues like the political uncertainty facing the Karnataka Assembly elections, weakening rupee and surging crude prices. The benchmark S&P BSE Sensex resisted the highly volatile month and managed to end with moderate gain by 0.46% to close at 35,322.38, while the broader Nifty 50 closed marginally down by 0.03% to end at 10,736.15.

Market Performance**

The month of May'18 saw benchmark indices viz. S&P BSE Sensex & Nifty 50 showing contradictory behavior. While S&P BSE Sensex was seen rising by ~0.46% during the month to end at 35,322, Nifty 50 slid 0.03% to close the month at 10,736.15. Intermittent volatility was caused by certain key events like positive macro-economic variables, results of the elections in Karnataka, spike in domestic petrol prices due to volatility in international crude oil prices and depreciating domestic currency. Volatility in the markets also impacted S&P BSE Mid- cap & S&P BSE Small-cap which fell by ~5.87% & 6.26% respectively. Amongst the others, S&P Healthcare, S&P BSE Consumer Durable and S&P BSE Realty were seen falling by ~7.64%, ~8.13% & ~8.05% respectively.

IIP^

The Index of Industrial Production (IIP) for the mining, manufacturing and electricity sectors for the month of Mar'18 stood at 2.8%, 4.4% and 5.9% as compared to Mar'17. In terms of industries, 11 out of the 23 industry groups in the manufacturing sector have shown positive growth during the month of Mar'18 as compared to the corresponding month of the previous year. As per usebased classification, the growth rates in Mar'18 over Mar'17 are 2.9% in Primary goods, -1.8% in Capital goods, 2.1% in Intermediate goods and 8.8% in Infrastructure/ Construction Goods, while consumer durables and consumer non-durables recorded growth of 2.9% and 10.9% respectively.

FPI Inflows*

The unstable external environment, weakening currency and uncertainty in the political landscape of India, lead to net negative flows of ~ Rs. 8,979 Crs. by FPIs (Foreign Portfolio Investors) in the Indian Equities. However, the markets did not get impacted to a larger extent as the domestic market participants supported by being net buyers in Indian equity markets. Domestic investors were seen to infuse money to the tune of ~ Rs. 12,509 Crs. in the month of May'18.

Outlook

The improvement in the capex cycle along with a combination of structural reforms like the implementation of the e-way bill is expected to add positive momentum in the coming months. This is one of the many structural changes which have been brought about in the recent past to improve the Indian economy as a whole.

Upcoming state elections and uniform distribution of rainfall across the country would remain the key variables which would shape the way the outlook for the economy shapes up.

On the global front, the volatile oil prices, on-going trade wars and geopolitical tensions could impact the markets for short to medium term. In addition, any escalation in the US-China trade war, would likely hinder the economies across the globe which could affect markets globally as well as domestically.

We expect the market to improve in medium to long term and could be seen as an opportunity by the investor to enter the market and take exposure to Indian equities. With expectations of volatility entrenched around markets, we see merit in increase allocations towards equities in a staggered manner in order to even out the market volatility.

Source:
^ MOSPI
* ICRA MFI Explorer
Data as on 31st May, 2018

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 May'18, Indian 10 Year G-sec yields remained range-bound on the back of volatile global factors and domestic macro-economic variables. Global environment continued to remain uncertain with unclear trade relations of US with China as well as the continued political tension in Italy which could impact the political landscape of Eurozone. On the back of this market remained under pressure and the US 10-year Treasury yields fell by 9bps to 2.86% on 31st May'18 as compared to 2.95% on 30th Apr'18. Federal Reserve's in its May'18 meeting hinted that they would wait for any interest rate rise, till inflation reached above its 2% target. The pound depreciated after the Bank of England kept its interest rate unchanged on the back of weakening of inflation.

In addition, the global crude prices were seen to have a highly volatile month of May'18. In the initial half of the month, the global Crude oil prices saw an increase due to US decision of abandoning the nuclear deal with Iran. However, the price reduced after Saudi's, under US pressure, indicated that they might increase the production to make up for the low production in Iran and Venezuela. Despite the news for increasing supply, Brent Crude closed at $77.59 per barrel as on 31st May'18 as compared to $75.17 per barrel as on 30th Apr'18. Indian rupee weakened against the U.S. dollar due to the rising global crude oil prices and speculation that the Fed will hike interest rates faster than expected in 2018. Indian Rupee depreciated by Rs.0.75/$ as compared to last month and closed at Rs.67.06/$ on 31st May'18. All this combined resulted in the Indian 10-year benchmark yields hardening by 6bps to 7.83% on 31st May'18 as against 7.77% on 27th Apr'18.

India's GDP @7.7% in Q4FY18#:

Indian economy expanded at its fastest pace during the Mar'18 quarter on the back of increase in government spending. The Indian GDP rose at 7.7% in the Q4FY18 in comparison to 6.1% in the same period last year, and a revised 7% in the quarter ended December'17. India thus surpassed China's growth of 6.8% in the same period. For FY18, the Indian economy grew at 6.7% on a yearly basis. On the sectoral front, Agriculture, forestry & fishing, manufacturing and construction witnessed a growth of 4.5%, 9.1% and 11.5% respectively. The public administration, defence and other services witnessed a maximum growth of 13.3% while mining and quarrying sector witnessed a minimum growth of 2.7%. Robust performance by manufacturing and service sectors as well as healthy farm output remained the key driver of the economy. The farm sector also grew at a healthy rate of 4.5%, while construction activity, powered by government investments in the highways sector, clocked a double-digit growth of 11.5% to give a fillip to the economy. Government consumption expenditure rose at 16.8% compared with 6.8% in the three months to Dec'17. As per the report, core GVA (GVA excluding public services and agriculture), which is a rough proxy for private sector growth, moderated slightly in the Mar'18 quarter to 7.2% v/s 7.4% in the last quarter.

Retail as well as Wholesale Inflation increased# :

India Apr'18 CPI inflation firmed to 4.58% on a year on year basis as compared to 4.28% in Mar'18. The core CPI inflation for Apr'18 stood at 5.92% as against 5.37% in Mar'18. For the month of Apr'18, the WPI based inflation increased to 3.18% as against 2.47% in Mar'18 majorly impacted by the increase in prices of fuel and power which was at 7.85% v/s 4.70% in Mar'18. The WPI for food articles for the month of April'18 came in a 0.87% v/s -0.29% in Mar'18.

Fiscal Deficit &

The government in the union budget in Feb'18 had revised the fiscal deficit target for 2017-18 to 3.5% from the earlier estimate of 3.2%. It also proposed to bring down the fiscal deficit for FY18-19 to 3.3% of the gross domestic product. As announced by CGA (Controller General of Accounts), the fiscal deficit for FY18 worked out to be 3.53% of the GDP, broadly in line with the government's revised estimates. According to the data released by the CGA, the revenue deficit was 2.65% of the GDP. In absolute terms, the fiscal deficit was Rs 5.91 lakh crore or 99.5% of the Budget estimates.

Outlook:

The inconclusive election in Italy could impact the European markets which may have its implication on the rest of the euro zone and global market sentiment going forward. Due to the uncertainties around the political crisis in the Eurozone and the trade related issues between US and China could add to the volatility in the short to medium term.

Domestically, a normal monsoon is expected to keep food inflation benign in near future whilst fall in oil prices is likely to ease pressure on inflation. RBI's will continue to keep a close watch on the macroeconomic and financial developments in the coming months as the increase in inflation has put aside chances of a rate cut in the near term and this year's monsoon has become critical for the overall prospects of the economy.

Crude oil prices remain to mimic the tensions in the globe and have been extremely volatile in the recent past. If oil prices remain high if the government increases minimum food support prices by a larger margin and if it increases the fiscal deficit, market participants then would possibly expect a weaker INR on foreign investor outflows. Market Participants hence would like to adopt a 'wait-and-watch' approach, and closely monitor movement in crude oil prices, and the government commitment towards fiscal consolidation in 2018.

While the recent uptick in the inflation has stressed the market a little, the expectation of good monsoon and inflation targeting monetary regime adopted by the RBI is likely to keep inflation in check, keeping the yields range bound. We continue to remain constructive on the interest rates on the longer term but expect the 10-year benchmark to be under some pressure in the near term. RBI increased repo rate in June policy though has kept the stance as “neutral” indicating that the RBI is likely to remain data dependent and this is not the first hike in series of rate hikes.

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.