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Month of Feb’18 was a month which witnessed a host of negative surprises due to more number of events than trading days in the month. Indian equity markets remained subdued primarily by negative sentiments from the local as well as global markets. Union Budget was one of the key event in the month which triggered the fall of the benchmark indices after the finance minister Arun Jaitley announced long-term capital gains (LTCG) tax for investing in equities. The month saw S&P BSE Sensex and Nifty 50 below the 36,000 and 11,000 marks respectively. Investors resisted the announcement of extension of the fiscal deficit target for FY19 to 3.3% of GDP in the Budget, which resulted in the hardening of the yields across the yield curve.

Further to the events, India‘s second-biggest state-run lender, stunned the country‘s financial sector this month when it announced it had discovered an alleged fraud, the biggest ever detected by an Indian bank, worth Rs 11, 400 crore ($1.8 billion) at a single branch in Mumbai. Even the fixed income markets were impacted with the event as the yields of the 10-year benchmark hardened during the latter half of the month which were seen to be fairly range bound before the RBI’s Monetary Policy Committee’s (MPC) meeting. Post the policy, yields rose on back of rising U.S Treasury yields and a rise in international crude oil prices. Overall, during the month gone by, several events weighed negatively on the equity and fixed income markets in India.

Market Performance*

The Indian equity markets ended the month on a negative note, due to the negative sentiments of the market participants and sell off in the positive global markets. Markets were seen in the negative territory as Nifty 50 and S&P BSE Sensex down 4.85% (M-o-M) and 4.95% (M-o-M) respectively. On the other hand, the mid and small cap were down by 4.62% (M-o-M) and 3.15% (M-o-M) respectively.

IIP^

India’s Index of Industrial Production (IIP) slowed to 7.1% in Dec’17 as compared to the growth for the month of Nov’17 which was revised higher from 8.4% to 8.8%. The manufacturing sector also surged 8.4% in Dec’17 from 0.6% in the same period of the previous year. However, IIP growth for Apr to Dec’17 slowed to 3.7% from 5.1% in the same period of the previous fiscal. Apart from the growth the industrial activity also showed a strong sequential improvement.

Inflation^^

The Consumer Price Index (CPI) based inflation for the month of Jan’18 came in at 5.07% as compared to 5.2% in Dec’17. The consumer price inflation toned-down slightly in January as the spike in vegetable prices began to cool off. As base effect wears off and with continued downtrend in food prices, inflation is likely to cool off further. India’s retail inflation slightly eased but remained above the 4% medium-term target of the Reserve Bank of India (RBI) for the third straight month but was well within the band of 2%-6%. While the budget increase in some import taxes and the widening of the fiscal deficit for FY20 to finance a rise in spending on rural areas and health-care may indirectly impact inflation, RBI is projecting inflation to fall in 2H 2019.

Trade Deficit##

Trade deficit of our economy widened to a 56 month high in Jan’18 to USD 16.3 bn, as imports of precious stones and crude oil flowed during the month while growth in exports slowed down. Merchandise exports rose 9.1% in Jan’18 while merchandise imports rose 26.1% during the same period. Import of precious stones rose 55.7% and petroleum 42.6% in Jan’18. Gold imports slipped by 22.1 % to $1.6 bn which was more than offset by higher imports of silver, pearls, and precious and semi-precious stones.

RBI’s Monetary Policy**

The MPC continued its “neutral” stance whilst keeping the key interest rates unchanged in its 6th bimonthly policy. Out of the 6 members in the MPC, five members voted in favour of status quo policy, while one member voted in favour of at least 25 bps increase in interest rates. MPC’s decision was seen to be consistent with its neutral stance in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation, while supporting growth. There was only a slight shift towards a cautious bias, with headline inflation seen above target in FY19. The projected growth rate was reduced and the expectations of rising inflation is widely expected. Inflation projections on the other hand been revised to 5.1 – 5.6% in H1FY19 and 4.2 – 4.6% in H2FY19 owing to the uncertainty in crude oil prices and the impact of increase in house rent allowance (HRA) by the Centre. The MPC further noted that crude prices could soften on supply response to higher prices. With growth picking up, inflation rising and given that further fiscal slippages are possible, RBI seems to be in a wait and watch mode for now.

GDP#

Regaining India’s status as the world’s fastest growing major economy, India’s Q3 (Oct’17 to Dec’17) GDP grew at 7.2%, the fastest pace in five quarters. The regaining was majorly led by a stimulation in investment demand and recovery in industrial activity, especially manufacturing and construction, and an expansion in agriculture. Not only does the uptick in growth signal that the Indian economy is tiding over the interferences triggered by the demonetization of high-value currency notes and the rollout of the goods and services tax. But with the latest data of quarterly corporate earnings also suggests that the consumer demand is on the rise. The Q2 GDP growth is also revised to 6.5% to 6.3%. Based on the fiscal third-quarter, the full year’s growth has been revised upwards to 6.6%. But given the growth is on back of government spending, constraint could be the rising fiscal deficit numbers.

Triggers

  • The movement of crude oil prices would be closely monitored by the market participants as it impacts India macro through multiple channel.
  • Market participants are expected to closely track the U.S. markets and number of forthcoming rate hikes by the new chief of U.S. Federal Reserve Jerome Powell.
  • In the coming future, interest rates are expected to be volatile, given the uncertainty on future inflation reading, crude prices, and adherence to fiscal deficit target for next year.
  • Geopolitical tensions and volatile in commodity prices globally as well as government’s execution of various reforms on domestic front could impact the markets for short to medium term.
  • Union Budget 2018-19’s focus on infrastructure and rural spending as well as SMEs for higher growth and job creation could provide the necessary stimulus to the market. How the government plans to proceed on this could impact the markets in the coming future.

Source:
* Bloomberg
^ mospi.nic.in
^^ ICRA & RBI
## Ministry of commerce
# Economics times

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 Feb'18, the Indian Equity markets remained volatile with market participants remaining cautious after the public-sector bank fraud debacle and awaiting GDP data for quarter ended Dec'17. The month started with the key event of Union Budget 2018-19 which announced the increase in fiscal deficit target to 3.5% of the GDP as against 3.2% earlier as well as the incidence of LTCG (Long Term Capital Gain) for equity investments. In addition, the fiscal deficit during Apr-Jan'18 surpassed the annual budgeted target for FY18 and other weak macros like decline in Manufacturing PMI index weighed on market sentiments. Globally also, some degree of stability returned during the last month, after a muted 2017. Improving global macros have resulted in a certain sell off in the Indian markets keeping the sentiments of the participants' bleak. During the mid of the month, Indian equity markets got impacted significantly with the scam fallout in state owned bank which led the market participants to remain on the selling spree. India's GDP grew at 7.2% YoY in Q3FY18, better than upwardly revised growth of 6.5% in the previous quarter driven by pick up in manufacturing and spending. However, on Gross Value Added basis, the economy rose 6.7%, better than upwardly revised growth of 6.2%. Foreign investors were seen withdrawing funds from the Indian equities but again markets were supported by the domestic investors. Despite some positivity in form of softening global crude oil prices and domestic inflation softening a bit, Indian bellwether indices were seen trading in red towards the end of the month of Feb'18.

Market Performance**

The Indian bellwether indices viz. S&P BSE Sensex & Nifty 50 closed in red for the month of Feb'18, down by 4.95% & 4.85% respectively. Similar impact was also felt in the mid and small cap space. S&P BSE Mid- cap index & S&P BSE Small-cap index were down by 4.62% & 3.15% respectively. While most major sectors were seen trading in the negative territory, S&P BSE Bankex and S&P BSE Capital Goods were the most beaten sectors during the month down by 8.62% and 6.32% respectively.

Growth`

The Nikkei India Manufacturing Purchasing Managers Index (PMI) fell marginally to 52.1 in Feb'18 from 52.4 in Jan'18. The index value was primarily driven by a marked rise in manufacturing production, whilst there were reports of improved underlying demand, with domestic and external sources driving new business gains. It was promising to see that India's manufacturing sector remained in growth territory, as the impact of implementation of GST continues to dissipate. The Nikkei India Services Purchasing Managers' Index, fell from 51.7 in Jan'18 to 47.8 in Feb'18, its lowest level since August. The headline figure signalled the first fall in output for three months.

IIP^

India's Index of Industrial Production (IIP) maintained strong recovery momentum, growing at 7.1% in Dec'17 after posting a revised estimate of 8.8% in Nov'17. As per sectoral classification, Mining, Manufacturing and Electricity reflected broad-based growth, rising at 7.5%, 2.7% and 2.7% (MoM) respectively. Overall, Dec'17 IIP presents an encouraging picture of the underlying growth fundamentals of the economy. Recovery in manufacturing sector is a much-needed indicator for upholding growth expectations for this and the following fiscal year.

FPI Outflows**

The month of Feb'18 saw an outflow by FPIs (Foreign Portfolio Investor) on back of outcome in the union budget and changes for the economy. The net FPI outflow for the month was Rs. 10,163 Crs (as on 27th Feb'18). Whereas, domestic Mutual funds increased their exposure to equities with the net purchase being Rs. 13,261 Crs (as on 26th Feb'18).

Outlook

Q3FY18 corporate earnings has so far been better than market expectations, post implementation of the GST and demonetization being behind us. This may be aided further by the passage of the e-way bill in the coming months. The improving demand scenario and the uptick in the business activity could help improve capacity utilization which could lead to better corporate earnings.

Geopolitical tensions and volatile oil prices globally as well as government's execution of various reforms on domestic front including the upcoming state elections could impact the markets going forward.

With the strengthening GDP numbers, the long-term opportunities presented by the structural changes that have taken place should improve our economy on medium to long term. This could also improve the fiscal health of the government balance sheet.

Increasing Infra spending, urban consumption and rising rural wage growth could help improve demand going forward. Monsoons in 2018 would however remain the key monitorable factor for a sustained improvement in rural demand.

With the near-term volatility, the long-term potential of Indian economy remains intact. We continue to be constructive on equities and hence, in our opinion, we see value in increasing allocation to equities in a staggered manner to even out the market volatility.

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.

For the month of Feb'18, Indian fixed income markets continued to remain in volatile territory. During the month, market participants remained cautious ahead of key events such as Union budget, RBI policy (in which RBI continued its stance to remain 'status quo'). The Indian 10yr G-sec hardened by 30bps to 7.73% towards the end of the month as compared to 7.43% on 31st Jan'18 on back of global and local events. India's GDP for Q3FY18 grew by 7.2% driven by pick up in manufacturing and spending. On Gross Value-Added basis, the economy rose by 6.7%. Due to an increase in import, the trade deficit widened which was majorly impacted by rise in import of petroleum, chemicals, silver, pearls and machine tools. On the global front, market participants remained conscious over U.S. budget deficit and current account deficits amid a government spending splurge and large corporate tax cuts. Amid a strong recovery in the eurozone's economy, ECB decided to scale back its stimulus later this year which kept the Euro stronger compared to other currencies. Brent Crude traded lower by $3.27 per barrel during the month amid concerns about increase in US Oil output which could dampen OPEC's efforts to drain the market of excess supplies. Brent Crude closed at $65.78 per barrel as on 28th Feb'18 as compared to $69.05 per barrel. Indian Rupee saw a fall and closed at Rs.65.18/$ on 28th Feb'18 as compared to Rs.63.59/$ on 31st Jan'18.

Retail as well as Wholesale Inflation eased#:

Retail inflation eased to 5.07% in Jan'18 from 5.21% in Dec'17 thus continued to remain above RBI's medium-term target of 4% for the third consecutive month. The Consumer Food Price Index also eased to 4.58% in Jan'18 from 4.85% in the previous month contributing to the decline in CPI. WPI based inflation eased to a six-month low of 2.84 % in Jan'18 due to cheaper food articles which saw a reduction and slowed to 3.00 % in Jan'18 as compared to 4.72% in Dec'17.

Fiscal Deficit widened significantly&:

India's fiscal deficit during Apr-Jan'18 stood at 113.7% or 6.76 lakh crore of the budgeted target for FY2018 majorly due to the higher expenditure. However, fiscal deficit was seen at 105.6% of the budget estimate for the corresponding period last year. Total revenue receipts remained at Rs. 10.96 lakh crore or 72.8% while, total expenditure amounted to Rs. 18.40 lakh crore or 83% of the financial year estimates.

Outlook:

  • The fiscal deficit target of 3.3% of GDP in FY19 set by the government in the Union Budget 2018-19 signifies that the country is returning to the path of gradual fiscal consolidation which could support the medium-term growth.
  • Despite the hardening of yields in the Indian debt markets, the long-term outlook of the Indian debt markets continues to remain positive on an overall robust macro-economic landscape. While macro-economic factors have deteriorated a little, overall situation is still robust which is reflective in a stable currency in past one year. FIIs have been continuously investing in Indian fixed Income markets despite sharp rise in yield, indicating that they see this rise as a temporary phenomenon and do not see any pressure on currency.
  • On the global front, market participants could closely track the development in the US market and the forthcoming rate hikes by the Fed reserve. Also, the movement of crude oil prices would be closely monitored since it could impact the domestic macro-economic landscape.
  • The inflation number seems to have peaked out as food pressures reduce and impact of increase in HRA allowances fade. CPI is further expected to come down as of GST reduces costs; a low base effect and the expectations of a good monsoon. Inflation however would be impacted by the increase in MSP which is expected to drive inflation up by ~ 40 – 50 bps.
  • Domestically, there would be volatility in interest rates given the uncertainty on future inflation reading, crude prices, fiscal deficit target for next year, MSP policy adopted by government in 2018 and its resultant impact on food inflation. RBI projects CPI to cool down in 2HFY2019 on back of expected good monsoons and fading impact of HRA allowances. RBI further sees oil prices coming down on supply increases. RBI is likely to be data driven in the near term and closely tracking global and local events

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.