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The month of Oct '18 saw the Indian equity indices trading in a negative zone. This was primarily on back of the falling rupee, higher crude oil prices and tensions between the global economies leading to trade wars. The month started with the Indian equity markets declining due to the uncertainties over international trade war conflict between the two major economies of the world US and China, and higher oil prices. As the month passed by, the markets witnessed the rupee weakening as oil prices remained elevated and global tensions continued. The domestic investors turned cautious during the month with the sell offs happening across the markets, strengthening of the dollar and uncertainties over the US-China trade relations. 
 
On the domestic fixed income side, the 10 year G-sec yields traded, in a range of 7.78% to 8.16% and closed the month at 7.85%. The start of the month saw, Monetary Policy Committee (MPC) in its fourth bi-monthly monetary policy review for FY19 keeping the key policy repo rate unchanged after it increased the same by 25 bps each in its two previous bimonthly policy meets. The domestic bond yields fell on back of the announcement of open market operations and government lowering the anticipated borrowing schedule for the second half of the year. Further to this yields fell post the announcement of RBI's bond purchase worth Rs.36,000 crore for month of October 2018. Fall in crude oil prices in latter part of the month boosted the market sentiment and pushed yields lower. The easing of CPI Sep'18 which was lower than RBI's expectation further gave momentum to the fixed income markets as expectations of near term rate hikes dissipated. 
 
On the global front, the global indices traded in a negative trajectory on back of the ongoing concerns over trade war between the United States and China. Investors further had concerns over the slowing down of the economic growth after the International Monetary Fund (IMF) downgraded the global growth forecast for 2018 and2019 owing to persisting concerns of a global trade war. Overall market participants remained cautious over the trade wars, depreciating emerging market currencies and concerns on rising crude oil prices.

Market Performance*

The Indian equity markets ended the month on a negative note, on back of weak INR, higher crude oil prices and the ongoing trade wars. Nifty 50 was down by 4.98% (M-o-M) while S&P BSE Sensex was down by 4.93% (M-o-M). The S&P BSE Midcap and S&P BSE Small cap indices were relatively less hit and were down by 1.02% (M-o-M) and 1.59% (M-o-M) respectively.

IIP^

India's Index of Industrial Production (IIP) fell at 4.3% in August'18 as compared to 6.5% (revised) in July'18. The India's industrial activity lost steam in August as the country witnessed headwinds from increasing fuel prices, higher interest rates and deleveraging done by Indian banks. Output in 16 of the 23 industry groups in the manufacturing sector grew in August, with furniture, wearing apparel and wood and wood products showing the highest growth. On the other hand, printing and reproduction of recorded media, tobacco products and computer, electronics and optical products showed the highest decline.

Inflation^^

The Consumer Price Index (CPI) based inflation for the month of September'18 came at 3.77% as compared to 3.69% in August'18. Though India's inflation rose marginally it remained below the 4% mark. The increase in global crude oil prices compared to last year was balanced out by modest food prices and a decline in housing inflation. Inflation is currently below the MPC's forecast of 4.8% by June 2019. CPI food inflation rose to 0.51% in September'18 compared to 0.29% in August'18. While on the other hand, fuel and light inflation stood at 8.47% same as last time. Housing inflation stood at 7.07% in September'18, down from 7.59% in August'18.

Trade Deficit##

Trade deficit for India narrowed to $13.98 bn in September'18 as against $17.39 bn in August'18. The growth in manufacturing exports, rose 12.54% during the first six months in dollar terms y-o-y, which cancelled out the rising oil import bill for the world's third-biggest crude importer that has been suffering from rising oil prices. September imports were up 10.45% y-o-y.

Triggers

  • The ongoing financial results of the second quarter ended September 2018 would be carefully watched by market participants and give direction to equity markets.
  • Investors would closely track the ongoing tensions between US and China which could have a disrupting effect on the world economy.
  • The weakening of rupee against the dollar which is further supported by the volatile crude oil price will remain a major concern for domestic and foreign investors.
  • The trend in global markets, investment by foreign portfolio investors (FPIs) and domestic institutional investors (DIIs) would likely impact market sentiments.
  • India imports majority of crude oil and a surge in price for the same forms a major concern to to fiscal deficit, inflation. The situation is further exacerbated by rupee depreciation. However the recent trend of moderation in the oil prices is likely to boost sentiments.
  • The outcome of the upcoming assembly elections in 5 states, in the Nov/Dec, would be a key monitor to watch out for the domestic investors as it would set stage for the general elections in 2019

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.

October'18 was a lackluster month for investors around the world. From Hong Kong to New York to India, investors were concerned about slowing growth, trade wars and increasing interest rates. Global markets were seen getting impacted by the volatile US Dollar movements, geopolitical tensions and volatility in Crude oil prices. Brent crude prices recoiled by over 9%; marking its biggest softening since July'16.
 
Domestically, Indian equity markets were influenced by heavy foreign selloff as US economy outperformed the currency stressed emerging markets and bond yields there turned more attractive. Unpredictable crude oil prices, liquidity concerns in the NBFC space and a falling rupee also hastened this selloff. On a year-to-date basis, the BSE500 index has lost nearly 9%, whereas the BSE Midcap and Small cap indices have fallen by ~20% and ~28%, respectively, till end October'18. The corporate earnings season so far was in line with market expectations however the markets are expected to be guided by global as well as domestic macro-economic variables going ahead. In the month of October'18, while FIIs were seen withdrawing funds amounting to INR 28,921 Crs., domestic investors continue to invest in Indian equities to the tune of INR 24,047 Crs.

Market Performance*

A confluence of global as well as domestic events led the bell weather indices like S&P BSE Sensex & Nifty 50 close at 34442 and 10387 levels respectively. The S&P BSE Sensex saw a sharp drop of 4.93% while Nifty 50 fell by 4.98%. Meanwhile, S&P BSE Mid-Cap & S&P BSE Small-Cap indices were seen trading lower by 1.02% and 1.59% respectively. 
 
On the sectoral front, S&P BSE Capital Goods and S&P BSE India Power index were amongst the few sectors which rose by 2.22% and 1.49%, respectively during the month. The markets witnessed negative returns in S&P BSE Infotech, S&P BSE India Auto and S&P BSE India Oil & Gas index which were seen falling by 7.02%, 7.43% and 10.83 % respectively

IIP^

Industrial production for the month of Aug'18 stood at 4.4% lower than revised estimate of July-18 at 6.5% (previously 6.6%), mainly due to unfavourable statistical base. Cumulative IIP stood at 5.2% for Apr-Aug period. As per sector-based classification, sequential momentum noted expansion in Manufacturing by 1.7% and Electricity by 3.1% while Mining sector contracted by 3.5%. On the usage front, all sub-categories expect primary recorded sequential increase. Primary goods fell by -2.1% vis-à-vis contraction of -2.9% previously while capital goods which is a gauge of private sector investments increased by 7.7% compared to a contraction of -9.5% in July'18.

PMI`

The Nikkei India Manufacturing PMI rose unexpectedly to a four-month high of 53.1 in October'18 from 52.2 in September'18. Output growth accelerated to the second-highest registered in the year-to-date, new orders rise the most since June'18 and employment grew at the fastest rate since last December'18. Buying activity increased for the fifth month while, new export orders rose the least in three months.

FPI Outflows **

Buoyed by new business orders, India's services sector activity expanded at the quickest pace in three months in October'18. The Nikkei Services Purchasing Managers' Index rose to 52.2 in October'18 from 50.9 in September'18, driving the rate of job creation to the second-strongest in over seven and-a-half years. Growth in business activity was recorded in three of the five monitored categories and led by information & communication. Declines were evident at finance & insurance and real estate & business services companies.

Outlook

The Indian markets are evaluating multiple variables, both global and domestic, and implications of those variables on Indian economy, macroeconomic indicators and equity markets. While a majority of global issues are impacting all emerging markets including India, India specific factors like worries over liquidity at NBFCs, oil prices and sentiments associated with elections are playing a crucial role in market moves.

Global financial markets continue to be driven by the economic factors (US monetary policy & its implication on dollar vis a vis the currencies across world) and geopolitical factors (trade wars, rising crude oil etc.) Equity markets in USA continue to outperform the emerging markets which are under stress led by currency. Indian markets too have been impacted by this. In this context the US Fed policy action on interest rate hikes are to be monitored closely.

Oil prices retreated by nearly 10$ during the month after recording a high of making a high at 86$. Falling oil prices could provide a vital support to economy as worries over fiscal deficit, current account deficit, inflation and interest rates starts receding. Oil price is a key indicator to be monitored for its implications on Indian equities and fund portfolios.

The earnings season for Q2FY19 has so far has been in line with market expectations but the changes in the macro environment (oil, rupee, slowdown among NBFCs etc) and management commentary accompanying the Q2 results, points towards a slowing momentum going ahead and some moderation in earnings estimate are expected for H2FY19.

In the near term, volatilities in Indian equity markets are likely to continue as market sentiments are focussed on outcome of elections (states as well as centre) over next 6 months. While the election outcomes are unlikely to alter the long-term growth dynamics for Indian economy, the temporary fears could make foreign investors prefer a waiting approach.

We believe that the medium to long term growth prospects for India remains strong and equity markets offer investors an opportunity to participate in the economic growth. Foreign investors may take a temporary breather, ahead of the elections, the structural growth opportunity would attract them to India over medium to long term. We believe Indian investors too should remain focussed on this opportunity that is offered by India's growth story. A strategy of continuing the SIP would be beneficial for a long-term investor in the current environment.

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'18, yields in the Indian fixed income markets softened due to the decrease in the crude oil prices, narrowing trade deficit and strengthening of the rupee. During the month of Oct'18 Indian 10-year benchmark surged to a high of 8.16%, but also eased ending at 7.85%. The domestic fixed income yields plunged after the Monetary Policy Committee (MPC) surprised the market participants keeping the interest rates unchanged in its fourth bi-monthly monetary policy review. Yields further eased off post RBI's announcement of carrying out open market operations and the governments slower anticipated borrowing schedule in the second half of the year. Crude oil prices also reduced boosting the sentiments of the market participants. The movement was further supported by strengthening of the Indian Rupee and a softening inflation print, which was in line within the expectations. Overall, Brent crude prices reduced by ~$7.25/barrel to $75.47/barrel at the end of Oct'18 from $82.72/barrel on Sep'18 end. Following the Indian Rupee to strengthen a little against the USD and close at Rs. 73.96/$ on 31st Oct'18 from Rs. 72.49/$ on 28th Sept'18.

 
The month witnessed global volatility in the form of volatile US treasury yields. The yields rose after the U.S. & Canada got into a deal to save North American Free Trade Agreement (NAFTA) along with Mexico. The US yields rose and touched multi year highs after optimistic U.S. economic data increased the probability of rising the rates by the U.S. Federal Reserve in the upcoming policy. Concerns over slowdown in China, tensions between the European Union and Italy and downbeat in the U.S. corporate earnings reports for the quarter ended Sep 2018 also raised concerns to the volatility in the global yields.

Retail Inflation below RBI's target:

India's retail inflation came in slightly higher to 3.77% in Sept'18 from 3.69% in Aug'18 owing to an increase in food and fuel prices. The same stood well within the RBI's medium-term target of 4%. Food inflation rose to 0.51% from 0.29% in Aug'18. Among the other important components, fuel and light inflation grew 8.47%, while the inflation in housing came in at 7.07% in Sept'18. Wholesale prices in India rose by 5.13% in Sept'18, after a 4.53% in the prior month because of increase in the cost of manufacturing products and fuel. The cost of manufactured products increased to 4.22%, while cost of fuel and power went up 16.65% in Sept'18.

Fiscal deficit touched 91.3% of FY18 target&:

India's trade deficit narrowed to USD 13.98 bn in Sept'18 from USD 17.4 bn in Aug'18 being the lowest in the last five months. Solid growth in manufacturing exports, rose 12.54%, sales rose for plastics and linoleum (28.2%); petroleum products (26.8%); chemicals (16.9%); drugs and pharmaceuticals (3.8%); and cotton and handloom (3.6%). Imports went up 10.5% to USD 41.9 billion, boosted by purchases of gold (51.5%); petroleum and crude (33.6%); coal, coke and briquettes (23.6%) and electronic goods (11.4%).

Outlook:

Investors need to take cues from the global landscape, with improving US economic activity data, the expectation of increase in FED funds rate in the month of December'18 seems a certainty. This rate hike may hit sentiments and the flow of funds to Emerging Markets.

A depreciating INR, volatile crude oil prices and other global uncertainties may force the RBI to remain guarded. RBI may closely monitor the inflation print and the currency movements in the coming months before deciding the course of action in the month of December'18.In the recent times with more announcements of OMO's we expect that going ahead as well, RBI may actively manage the liquidity position especially after the announcement of lower borrowing by the government.

In the shorter end of the curve, steepening was observed due to credit concerns till the 1-year space. Once the credit concern abates and market gets confirmation of long pause in interest rates, we expect term spreads up to 1 year to reduce.

We expect short term volatility to continue amid negative sentiments, but the long-term picture continues to remain healthy. A sharp drop in oil prices augurs well for the Indian economy and the oil prices may remain under pressure in near term as near term global oil demand projections have reduced. With inflation also remaining below 4%, RBI may be in for a longish pause. We continue to believe that a strategy which focuses on current accruals and active duration management could offer better risk-adjusted returns.

Source:
#MOSPI
^RBI
*MFI Explorer
@Bloomberg
&CGA

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.