Skip Ribbon Commands
Skip to main content
home crmf > Pages > newsletterMay2018

The month of April'18 saw S&P BSE Sensex regaining the 33,000 mark on the back of positive sentiments which persisted across the domestic due to strong macro-economic prints as well as in the global markets because of varied reasons. Globally, market participants were relieved post the easing concerns over the on-going trade war between U.S. and China and on the development of Peace pact between North & South Korea. Domestic Fixed Income markets however were surrounded by Negative sentiments which led to the hardening of yields on back of losses in the domestic currency persisting due to the geopolitical tensions and surge in global crude oil prices as well as U.S. Treasury yields. Overall Apr'18 could be considered as a month which was driven more by global and less by domestic activities.

Market Performance*

The Indian equity markets ended the month on an affirmative note, due to the optimistic sentiments of the domestic and global market participants. Markets were seen in the positive territory as Nifty 50 and S&P BSE Sensex up 6.19% (M-o-M) and 6.65% (M-o-M) respectively. While, the mid and small cap were up by 6.57% (M-o-M) and 8.28% (M-o-M) respectively.

IIP^

India's Index of Industrial Production (IIP) rose to 7.1% in Feb'18 as against 7.4% in Jan'18 as per the revised data, riding on the back of robust performance in the manufacturing coupled with higher offtake of capital goods and consumer durables. Manufacturing sector, which constitutes over 77% of the index, grew at 8.7%, Capital Goods output rose by a robust 20% and Consumer durables too grew at 7.9% in Feb'18. In terms of industries, 15 out of the 23 industry groups in the manufacturing sector showed positive growth in Feb'18.

Inflation^^

The Consumer Price Index (CPI) based inflation for the month of Mar'18 came in at 4.28% as compared to 4.44% in Feb'18. India's retail inflation came in lower for the third consecutive month mainly on account of easing food prices including vegetables. The CPI for Mar'18 remained above 4%, the mediumterm target of the Reserve Bank of India (RBI) but was well within the band of 2%-6%. Inflation came in lower in Mar'18 on back of easing of inflation in the vegetable segment and further support from protein-rich items like eggs, milk and other products which too toned-down inflation during the month.

Trade Deficit##

Trade deficit widened to $13.7 bn in Mar'18 as against $12.0 bn in Feb'18. During the month of Mar'18 India's exports fell 0.66% to $29.11 bn while, import grew 7.51% to $42.80 bn. Sluggish non-oil exports combined with an unexpected resurgence in the growth of non-oil, non-gold led to a sharp widening in the trade deficit. India's trade deficit almost doubled in 2017-18 from the previous fiscal as the country's import bill continued to inflate. The gap between exports and imports, widened 28.5% from a year ago, taking the annual deficit to $87.2 bn. Exports of gems and jewellery, which is typically the second major contributor to the bill, declined 16.57%.

Triggers

  • Corporate earnings are expected to be better than the previous quarter on back of improved inflation numbers coming within RBI's trajectory along with strengthening macros
  • Market participants would continue to track the movement of crude oil prices, USD/INR movement that are expected to impact the markets going ahead.
  • The progress of monsoon is likely to help in determining the inflation trajectory going forward as well as direction of global oil price. To add to the optimism, IMD has forecasted normal monsoon this year. This would boost the sentiments and agriculture output multifold.
  • Geopolitical tensions and volatility in commodity prices, especially crude oil, 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 Indian Equity markets ended the month of Apr'18 on a positive note, on back of positive macro-economic data and support from the global markets. The Indian equity markets started the run post the Reserve Bank of India (RBI) lowered inflation forecast for the year ending 31Mar'19 amid higher growth projection as part of the monetary policy. Optimism was further supported by macro-economic numbers for the domestic economy. The prediction of normal monsoon by India Meteorological Department (IMD) further boosted the sentiments of the market participants. Globally markets traded volatile amid the on-going geo political tensions. Optimism was witnessed in the global markets post the support from easing concerns over trade war between U.S. and China.

Market Performance**

The Indian bellwether indices viz. S&P BSE Sensex & Nifty 50 closed in green for the month of Apr'18, up by 6.65% & 6.19% 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 up by 6.57% & 8.28% respectively. Most major sectors were seen trading in the positive territory with S&P BSE InfoTech and S&P BSE FMCG up by 12.12% and 9.87% respectively. Except for S&P BSE India Oil & Gas which remained in red and gave a negative return of 1.27%.

Growth`

The Nikkei Manufacturing PMI in India increased to 51.6 in Apr'18 from 51.0 in Mar'18. This was on back of the output and new orders which rose at faster pace since the implementation of the Goods and Services Tax. The Nikkei Services PMI in India surged to 50.3 in Mar'18 from 47.8 in a month earlier. New business returned to growth and employment grew the most since Jun'11.

Industrial growth Firms^

India's Index of Industrial Production (IIP) grew 7.1% in Feb'18 as against revised growth of 7.4% (7.5% reported) in Jan'18. The manufacturing sector surged 8.7% in Feb'18 from 0.7% growth in the same period of the previous year. Construction/Infra also played a vital role in industrial growth with 12.6% during the last month.

FPI Outflows**

Foreign institutional investors were net sellers of Indian equities in Apr'18. The net FPI outflow for the month was Rs. 5552.19 Crs(as on 27th Apr'18). DIIs continued their buying streak for the month of Apr'18, with the net purchases being Rs. 9435.64 Crs (as on 25th Apr'18).

Outlook

  • The overall macroeconomic data points for India continues to remain stable. Growth is expected to regain on back of increase in rural consumption.
  • The combination of structural reforms coupled with the improvement in the capex cycle & the implementation of the e-way bill is expected to further add to the positive momentum in the coming months.
  • High industrial growth suggests an uptick in the economic recovery however, increasing crude prices and threats to exports from disruptions in global trade had emerged as new risks to growth.
  • Monsoons would still remain the key factor for a sustained improvement in rural and urban demand across sectors. The upcoming state elections would be one of the key concerns to watch out for, as this can lead to higher volatility going forward.
  • Any intensification in the US-China trade war, would likely hinder the economies which could affect markets globally as well as domestically.
  • We could witness volatility in the short term but the long-term outlook that is presented by the structural changes that have taken place in India continues to remain strong. However, geopolitical tensions and rising crude prices globally could also impact the markets for short to medium term. With expectations of volatility entrenched around markets, we see merit in increase allocations towards equities in a staggered manner.

Source:
^ MOSPI, ICRA
` Markit
* RBI
** 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.

The new financial year started with RBI maintaining its neutral stance on its policy rates and lowering of inflation forecast. During the month of Apr'18, fixed income market remained highly volatile and continued to struggle due to the global and domestic factors. On the domestic front, the Indian 10-year benchmark saw yield's softening in the initial week of April'18, primarily on the back of announcement of reduction in borrowing in FY2019 and RBI's neutral stance whilst keeping the key interest rates unchanged in its first bi-monthly monetary policy for FY2019. However, in the later part of the month global factors impacted the market due to the increase in crude oil prices, hardening of US Treasury Yields and hawkish minutes of April'18 policy leading to higher rates. The 10-year government bond hardened by 37bps with the benchmark yield touching 7.77% mark on 27th Apr'18 as against 7.40% on 28th Mar'18, though it dropped to 7.13% in early part of the month. On the global front, market continued to remain under pressure due to the rise in geopolitical concerns along with declines in crude oil production impacting the price. U.S. Federal Reserve raised interest rates by 25 basis points while reiterating its plan to raise rates gradually. This impacted other markets especially emerging economies. Before taking any action on interest rates, European Central Bank in the policy decided to leave rate unchanged with eurozone economy wavering. In recent times, crude oil prices were seen to be volatile largely due to the reduction of crude oil inventories in the US and global supply risk on back of renewed geo-political tensions. Brent Crude prices traded higher due to lingering concerns that U.S. may re-impose sanction on Iran during the next month. Brent Crude closed at $75.17 per barrel as on 30th Apr'18 as compared to $70.27 per barrel as on 29th Mar'18. Indian Rupee depreciated by Rs.1.48/$ as compared to last month and closed at Rs.66.66/$ on 27th Apr'18.

RBI-Bi-monthly Policy in line with the expectations ^:

Post the assessment of current and evolving macroeconomic circumstances, the Monetary Policy Committee (MPC) has kept its “Neutral” stance unchanged in its 1st Bi-monthly policy for FY2018-19. MPC's decision is 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. Accordingly, the Repo was kept unchanged at 6.00% & CRR unaltered at 4%. Consequently, the reverse repo rate under the LAF also stood at 5.75% and the MSF rate at 6.25%. In a surprise move, MPC lowered of inflation forecast for H1 2018-19 (4.7 – 5.1%) whilst keeping H2 @4.4%. While, the tone of the policy was perceived as “dovish”, with reduction in inflation projection for first half FY2019, MPC minutes revealed that the committee was more hawkish on inflation trajectory and one member likely to change stance in the next policy meet. The MPC observed that even as overall food inflation may remain under check, upside pressures from crude prices and improvement in domestic demand through longer term benefits of GST stabilisation on business activity will be observed.

Retail as well as Wholesale Inflation eased # :

The Retail inflation grew 4.28% in Mar'18, down from 4.44% in the previous month and eased for the third consecutive month and marked a 5-month low, reflecting decline in prices of pulses and products, sugar and confectionery and spices by 13.41%, 1.61% and 0.07%, respectively. However, the retail inflation growth remained above the Reserve Bank of India's medium-term target of 4%. The Consumer Food Price Index also grew 2.81% in Mar'18, down from 3.26% in the previous month. For the month of Mar'18, the WPI based inflation slowed to an eight-month low of 2.47% in Mar'18 from a provisional 2.48% in the previous month on the back of decline in prices of pulses and fibre. Significant slowdown in fuel & power prices also helped ease inflation. The WPI Food Index also decreased to -0.07% in Mar'18 to 0.07% in Feb'18.

Fiscal Deficit &

India's fiscal deficit widened to Rs. 7.16 lakh crore at the end of Feb'18, exceeding the revised target of Rs. 5.94 lakh crore for the entire 2017-18 fiscal. For the Apr'17-Feb'18 period, it stood at 120% of the revised estimates due to increased expenditure and subdued revenue receipts.

Outlook:

With global geopolitical tension and economic uncertainties markets are expected to remain volatile primarily due to the US government trade policies and the unclear economic situation in the European region.

On the domestic front, the improving macro-economic variables and various policies implementation provides an opportunity to harness the unutilized potential. On the back of major reforms such as GST, FDI deregulation and RBIs stringent policies implementation, the Indian subcontinent continues to remain a favorable investment destination. The long-term outlook of the Indian debt markets continues to remain positive.

Going ahead, we might see inflation impacted by volatile international crude prices, volatility in the exchange rate on the back of global financial market developments and progress of monsoon. It is anticipated that RBI may remain in an “extended” pause through 2018, though continued higher oil prices may force some MPC members to take a more hawkish stance. While in short term yields may remain range-bound, over medium term we expect yields to resume the downward trend, as robust macroeconomic factors continue to support lower rates amid expectation of widening of limits for foreign investment in government debt.

While RBI reduced the inflation projections for FY2019, the tone of policy minutes continues to remain hawkish. While the market rallied strongly post policy to ~7.12%, post publication of MPC minutes, market gave up all the gains. With increase in currency-in-circulation, liquidity situation is likely to deteriorate. However, markets yields have already gone up substantially in anticipation of rate action from RBI. However, with RBI likely to remain in “pause” in near term, we believe that market sell off may be overdone. This gives an opportunity to long term investors to make fresh allocations to debt funds, in a phased manner, with a 1 – 3 years' timeframe.

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.