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The holiday-shortened month of Oct'17 saw the Indian equity markets growing on positive vibes, kindled by RBI policy outcome, positive macroeconomic data release and firmness in global stocks. The month begun with the RBI Bi monthly policy and as broadly expected, the RBI left its key interest rates unchanged, while reducing the Statutory Liquidity Ratio (SLR) by 50 bps to spur banks into lending more. As a result, Indian government bonds fell sharply, as investors were seen in the selling spree after the Monetary Policy Committee's meeting cautioned on fiscal slippage thereby suggesting lower chances of near-term rate cuts. Bonds also fell amid concerns of fresh supply after the RBI said state governments may auction bonds on a weekly basis going ahead, against the fortnightly auctions as of now. Sept'17 Manufacturing PMI showed no change, whereas Services PMI increased during the month of Sept'17. Industrial output strengthened in Aug'17 to a 9-month high seen due to re-stocking of manufactured items post GST implementation. Retail inflation remained neutral while moderating food prices resulted in deceleration of wholesale inflation. All this helped India leapfrog 30 places to 100th rank in the World Bank's Ease of Doing Business rankings. To further boost the economy grappling with low credit growth, Indian Government announced a capital infusion programme of Rs. 2.11 Lac Crores for the recapitalisation of PSU Banks and 6.92 Lac Crores funds approval for development of roads. The equity markets have been registering fresh highs after the government's announcement. Yields on the other hand hardened with the fear that the recapitalisation plan might further increase supply of debt in the market and of the fear that the government might exceed its borrowing programme. The conditions globally have improved with ECB committing to continue its asset purchases and improved growth recorded in the US, Japan and China. Crude Oil prices also shot up to $61.37/ barrel towards the end of Oct'17 on renewed faith in OPEC's ability to rebalance the oil market by extending the current production cut deal until the end of 2018 and the draw down in inventory levels in the US.

Market Performance*

In the month gone by, BSE Sensex soared over 33,600 mark and clocked its all-time high figure of 33602, while Nifty 50 reached its life time high figure of 10,437. The month saw all the major indices in the positive territory. While the bellwether indices viz. Nifty 50 and S&P BSE Sensex gained 5.59% and 6.17% respectively, S&P BSE Midcap indices gained 7.76% and S&P BSE Smallcap rose by 9.23% respectively.

IIP^

The Index of Industrial Production (IIP) came at 4.3% (Y-o-Y) in August'17, as compared to the revised 0.9% (Y-o-Y) growth in July'17. The drastic increase in output is attributed to the re-stocking of manufactured items post GST implementation. Stronger growth impulses emanating from manufacturing and mining sectors aided in establishing an encouraging picture of underlying growth fundamentals of the economy. Sectoral trends highlight that this pickup in production activity was led by a broad based growth across all sectors, viz. Manufacturing at 3.5%, Electricity at 2.3% and Mining at 0.3%. As per Use based classification, Consumer durables grew by 8.0%, capital goods grew at 3.7% and Consumer non-durables by 2.7%.

Inflation^^

Retail inflation in Sep'17 remained unchanged from a revised to print of 3.28% in the previous month. The slight dip in retail inflation due to the moderation in food inflation was offset by increasing housing inflation on the back of the HRA revision. Wholesale Price Inflation (WPI) decelerated in the month of Sep'17 to 2.6% due to moderating food prices. A favourable base effect aided the moderation in inflation for fuel and power, despite the recent rise in prices of crude oil.

Trade Deficit: ##

Trade deficit for the month of Sep'17 narrowed to $8.98 billion as merchandise exports recorded positive growth and stood at $28.61 billion, up 25.67% from the previous year. While imports also inched up by 18.09% Y-o-Y at $37.60 billion, the overall impact was a reduction in trade deficit. During the month, imports of transport equipment, considered an indicator of demand in the economy, declined 27.6%; gold imports fell by 5%. This positive data recorded belied the concerns that implementation of GST had an adverse effect on the exports of Indian merchandises.

Triggers

  • The announcement of 2QFY18 corporate results is likely to be observed by market participants.
  • The expectation of Board Governor Jerome Powell nomination as the next FED chair should be positive for rate markets as he favors continuing gradual rate increases.
  • The stimulus of bank recapitalisation would help accelerate the NPA resolution process, and in turn is expected to improve visibility for the expected capex cycle recovery in India albeit with a slightly higher Debt/GDP ratio of the country.
  • The recent hardening of yields seen in the Indian Debt markets has been on back of expectations of the government exceeding its borrowing programme for the fiscal year. However, inflation continues to undershoot RBI's target and government has reiterated that they intend to meet fiscal deficit targets. While in short term markets may remain volatile, over longer term RBI's focus on inflation is likely to lead to lower rates over medium to long term.

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 festive month of Oct'17 lifted up the moods of the Indian Equity market participants and gave them many reasons to cheer. The equity markets began its upward movement during the month as key domestic economic indicators provided a cautiously optimistic picture. PSU Banks stocks moved up as the Indian government unveiled a Rs. 2.11 lac crore recapitalisation package for state-owned banks which would enable them to improve their ability to advance loans. The government also announced a Rs. 2.96 Lac crore package for development of the infrastructure of the country, due to which equity market participants rejoiced and the broad market indices scaled to new highs. Inflation was seen within the comfort zone of RBI while India became better with respect to ease of doing business. Globally, positive global cues also seem to be working for the markets. Better than expected earnings trends have boosted the markets in US and helped them soar to fresh record highs.

Market Performance**

A combination of factors such as earnings optimism, macro data, global cues, and technical factors worked in favour of the street, helping it post huge gains. The month of Oct'17 saw all major equity indices performing better than the previous month. Bell weather indices like S&P BSE Sensex & Nifty 50 were seen rising to 33602 and 10437 respectively. The S&P BSE Sensex rose by 6.17% while Nifty 50 recorded gains of 5.59%. Meanwhile, S&P BSE Mid-Cap rose by 7.46% while S&P BSE Small-Cap gained 9.23%.

On the sectoral front, all major sectors were seen mimicking the performance of broad indices. S&P BSE Telecom, S&P BSE Energy, S&P BSE Realty and S&P BSE Oil & were the prominent sectors which appreciated by 19.54%, 14.68%,11.52% and 11.42%, respectively during the month.

IIP^

India's industrial output grew sharply 4.3% in Aug'17, highest in nine months, showing signs of recovery, aided by an expansion in the manufacturing sector. The government also revised Jul'17 factory output growth to 0.9% in Jul'17, as compared with an earlier estimate of 1.2%. The recovery in industrial output hints at the fact that the companies have begun restocking and building fresh inventories after clearing up the stockpile in June ahead of the Goods and Services Tax's (GST) roll out from July 1, 2017.

PMI`

The Nikkei Manufacturing Purchasing Managers' Index (PMI) in India fell to 50.3 in Oct'17 from 51.2 in the prior two months. Output rose only fractionally during Oct'17 while new orders remained unchanged. Muted demand even led to a decrease in purchasing activity and pre-production inventories. The Nikkei India Services PMI Business Activity rose to 51.7 in Oct'17, from 50.7 in Sep'17, indicating modest growth in the sector.

Inflows in Indian Equities**

Reversing the trend witnessed in the last month, FPIs (Foreign Portfolio Investor) increased exposure to Indian equities in the month of Oct'17. FIIs turned positive on the back of the proposed bank recapitalisation plans. On net basis, foreign investors invested funds to the tune of Rs. 3054.93 Crs. in the Indian equity markets while domestic participants infused funds totalling to Rs. 9990.50 Crs.

Outlook

On the domestic front, the Indian equity markets continues to remain strong on the back of resilient macros, continuous structural reforms and positive systemic liquidity.

The earnings season so far has been in line with our expectations with no major negative surprises. We expect the earnings in the coming quarter to improve and corporate profits and margins are likely to start responding to the improving economy by H2FY18. The direction of the market in the medium term would primarily be driven by macroeconomic developments and news flows surrounding corporate earnings.

Globally, market participants would remain observant on the US Fed's decision of a possible rate hike during the upcoming FOMC meeting. The decision would largely dependent on US economic data as well as global dynamics. Global macro-economic situation is expected to remain volatile in the near term. However, with the macro-economic variables in India continues to remain strong compared to other emerging economies, it is unlikely to impact the market substantially.

The recent structural changes by the government are likely to be growth augmenting over the medium- to long-term by improving the business environment, enhancing transparency and making it easy to do business. Going ahead, these steps along with improving macroeconomic variables could augur well from a long term perspective.

India remains one of the most stable economies with a robust governance structure, sturdy regulations, unwavering currency and good projections of economic growth. The belief shown by the FIIs as well as the inflows by domestic market participants have brought in an added dimension of strong support to the equity markets. We continue to be constructive on equities and hence, in our opinion, we see merit 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.

During the month of Oct'17, yields in the Indian fixed income markets continued to harden amid concerns arising from rising crude prices and concerns related to fiscal consolidation post government's announcement of recapitalisation plan for state-run banks. To accelerate economic growth, the government of India has announced the capital infusion plan and will inject a total of Rs. 2.11 tn in the next 2 years including Rs. 1.35 tn through bank recapitalisation bonds out of which it would issue bonds amounting to Rs. 60 – 70,000 Crs in the current fiscal. This news weighed down on the debt market participants and resulted in the hardening of the 10 year benchmark. During the month, the 10-year G-sec yields which were seen at 6.66% during the beginning of the month, hardened by 20bps towards the end of the month to 6.86%, primarily due to the confluence of events such as hardening of crude prices, appreciating dollar against Indian rupee and improving performance of US and European markets. On the global front, 10Yr US Treasury yields showed marginal uptick reaching 2.38% and crude prices reached a near 2-year high; all this led the weakening bias on domestic yields to sustain. The European Central Bank in its monetary policy left its key policy rates unchanged while announcing an extension for its assets purchase scheme by nine months. Market participant's remained cautious over the outcome of the U.S. Federal Reserve's policy meeting to be held in Nov'17. Brent crude prices increased significantly by $3.83/barrel from $57.54/barrel at the end of Sept'17 to $61.37/barrel on 31st Oct'17. The Indian Rupee strengthened against the USD due to an increase in foreign investment limits in local debt markets and improving equity markets. While the month saw INR trading in a tight range, it closed at Rs. 64.75/$ on 31st Oct'17 from Rs. 65.23/$ on 29th Sept'17. Towards, the end of the month, the announcement of yet another OMO sale to address the excess liquidity in the system led yields to end near their highest levels during the month.

Retail Inflation remains low^:

The headline CPI for Sep'17 came in at 3.28% on the back of sharp decline in food prices. Also, the print for Aug'17 was revised downwards to 3.28% as compared to 3.36% estimated previously. Housing, fuel and light, clothing and footwear and miscellaneous goods rose 6.10%, 5.56%, 4.63% and 3.83% respectively. Housing inflation went up on back of government HRA adjustment. The WPI based inflation slowed to 2.60% in Sep'17 as compared to 3.24% (provisional) the previous month amid the reduction in food article prices mainly led by vegetables.

Fiscal deficit touched 91.3% of FY18 target&:

On the back of increase in capital expenditure, the fiscal deficit at the end of Sept'17 reached 91.3% of the budgeted estimate. The government's total expenditure increased on sequential basis and totalled to Rs. 11.49 lakh crore or 53.5% at the end of H1FY17-18. The capital expenditure by the government rose to 47.3% and revenue expenditure to 54.6% by the end of Sept'17, due to which the fiscal deficit for the government reached to Rs. 4.98tn of the total target of Rs. 5.46tn. In addition, the revenue deficit has overshot its budgetary estimate and rose to 118% of the full-year target of Rs. 3.2tn as compared to 91.9% the previous year.

Outlook:

  • On the global landscape, with an improving US labour market and rising economic activity, US Fed continues remove its accommodative policy and is likely to gradually increase its interest rates with next hike expected in the upcoming FOMC meeting in Dec'17. Going forward, the US Fed Policy decision would be instrumental in defining the path of the markets globally. The global markets could continue to remain volatile as major central banks remained vigilant over the macroeconomic developments.
  • Efforts taken by the government and RBI have worked in tandem to bring about pertinent structural reforms to bring in productive efficiency and ensure more efficient utilization of resources. The recent announcement of recapitalisation of bank bonds are likely to be subscribed by the banks themselves which will not be liquidity disruptive in the near term. This will likely have a very low impact on the liquidity conditions and market yields. Overall, the various initiatives taken by the policy makers is expected to strengthen the economy over the long term.
  • On the domestic front, various structural reforms are expected to provide impetus to growth on the back of improving business environment and increasing formalisation of the economy which augment well over the medium to long term for the economic growth. However, the concerns over increase in fiscal deficit on expectations of lower revenue growth due to implementation of GST could keep the fixed income market volatile.
  • With the inflation numbers well within the RBI's target, the central bank is expected to remain “neutral” mode and would keep a close watch on the incoming data. In the near term, we expect the yields to remain volatile due to the oversupply of bonds and likely increase in borrowing during the current fiscal. However, with the bonds being bought on every rise, we continue to believe that the appetite in the market is still present. With sharp slowdown in growth and inflation largely under control, over the medium to long term, these factors are likely to favour lower yields.

Source:
#MOSPI
^RBI
*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.